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Yen Ticks Up as Cautious BoJ Stands Pat

Yen Ticks Up as Cautious BoJ Stands Pat

David Cottle, Analyst

Talking Points:

  • The Japanese Yen rose after the BOJ left its monetary policy settings alone
  • This was a largely expected outcome, with a few minor tweaks to the central bank’s projections the only deviation
  • However, the US Dollar was already under a bit of pressure

The Japanese Yen strengthened further against an already shaky US Dollar after the Bank of Japan stuck to the markets’ script and left its policy settings alone.

That means that the short-term interest rate target remains -0.1%, and the ten-year Japanese Government Bond Yield Target stays at 0%. The BOJ’s pledge to buy JGBs at the current pace so that its holdings increase by ¥80 trillion ($710 billion) annually also remained in place.

However, its loan program aimed at boosting lending and supporting growth industries was extended for a year. Turning to its projections, core Consumer Price Index forecasts remained broadly steady, with a slight downturn for fiscal 2016/17. Core CPI is now seen at -0.2%, below November’s -0.1% projection.

The BOJ still predicts a 1.5% core CPI average in fiscal 2017/18 and a 1.7% average in fiscal 2018/19. The central bank also still thinks inflation will reach 2% in 2018, although overseas uncertainties – US policy, Brexit, China, take your pick – mean there are downside risks.

In its Quarterly Report, the BOJ said that the economy continues its “moderate” recovery, and is expected to expand accordingly in the months ahead. It acknowledged however that forecast risks lie to the downside and that current policy settings – “Qualitative and Quantitative Easing” – will be needed to stably achieve 2% inflation.

All up, it’s not clear that this should be a big Yen-positive all on its own, especially given the BOJ’s consolidating position as a rather secondary driver for the currency. That said, the US Dollar had already come under pressure in Tuesday’s Asia/Pacific trading session on the news that US President Donald Trump had sacked the acting Attorney General Sally Yates, who had questioned the legality of his immigration ban.

The Yen had also been underpinned by data released earlier showing that household spending beat forecasts in December. USD/JPY fell to 113.24 from 113.54 just before the BOJ made its call.

Carrying on down. USD/JPY

Yen Ticks Up as Cautious BoJ Stands Pat

Chart Compiled Using TradingView

The currency may hunker down now ahead of the post-policy-decision press conference from BOJ Governor Haruhiko Kuroda, which is coming up at 06:30 GMT.

Can we be a month into 2017 already? We certainly can. How are DailyFX analysts’ first-quarter forecasts bearing up?

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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