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Yen Tiptoes Lower as Bank of Japan Fails to Spring Surprise

Yen Tiptoes Lower as Bank of Japan Fails to Spring Surprise

2016-11-01 04:15:00
David Cottle, Analyst

Talking Points:

  • The Bank of Japan has been known to surprise the markets on monetary policy day
  • It declined to do so this time despite ongoing inflation weakness
  • The bar for action from here would appear to have been raised

The Yen was steady on Tuesday as the Bank of Japan did as expected and left its monetary policy settings unchanged.

The Bank of Japan revised down its inflation forecasts, but declined to expand stimulus.

At the end of a two-day meeting, the first since a broad policy revamp in September, the central bank’s board voted to keep its new anchor for 10-year government bond yields at zero.

The BOJ also left its target for a short-term interest rate on some commercial bank deposits at minus 0.1%.

The bank did push back its forecast date for hitting 2% inflation, to around fiscal 2018. Previously the bank said it would reach its target in fiscal 2017. Japanese fiscal years end in March.

The decision to leave the policy setting alone came despite the government’s headline inflation measure showing consumer prices have retreated every month since March. Even the BOJ’s own inflation gauge, which strips out the effects of both fresh food and energy, edged up only 0.2% in September, the slowest increase in three years.

The Yen hardly moved after the BoJ’s decision crossed the newswires. The US Dollar bought ¥104.92, having been around ¥104.81 beforehand.

The greenback has just turned in its strongest month of the year against the Japanese currency. Its 3.5% October rise came as investors suspected more divergence in policy between the BoJ and the Federal Reserve.

Up, but not by much (USD/JPY 60min chart)

Yen Tiptoes Lower as Bank of Japan Fails to Spring Surprise

Chart created using TradingView

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