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Japanese Yen: Speculation for Intervention to Intensify Ahead of BoJ

Japanese Yen: Speculation for Intervention to Intensify Ahead of BoJ

2010-03-12 22:41:00
David Song, Currency Strategist
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Moreover, central bank Governor Masaaki Shirakawa announced that the board will keep interest rates low in order to support the domestic economy, but noted that its liquidity injections has limited impact on inflation as he expects to see a moderate recovery this year. Nevertheless, BoJ board member Miyako Suda said that the “upside and downside risks for the economy are almost balanced” during a speech earlier this week, but went onto say that the outlook remains subject to high “uncertainty” as the private sector remains weak. As a result, he sees inflation to “keep falling around the current pace for the time being,” and argued that the government will need to make “structural reforms” to encourage a sustainable recovery. However, Mr. Suda expects conditions to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy, and said the central bank “will make persistent efforts to achieve sustainable growth with stable prices.”

A Bloomberg News survey shows all of the 17 economists polled forecast the BoJ to hold the benchmark interest rate at 0.10% next week, but market participants speculate the central bank to expand its emergency measures while maintain its JPY 19T balance sheet as the three-month bank-lending program from December is scheduled to expire at the end of this month. As policy makers continue to support the economy, expectations for an intervention could stoke additional downward pressures on the Japanese Yen, but a shift in risk sentiment could spark increase volatility in the exchange rate as the low-yielding currency continues to benefit from safe-haven flows. - DS

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