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Talking Points

  • There was nothing new in the Bank of Japan governor’s latest words
  • However, there was yet another commitment to all aspects of loose monetary policy
  • The Yen slipped, taking USD/JPY back above 114.00

See where the Yen stands in the trading community’s affections at the DailyFX Sentiment Page

Another “steady as she goes” speech Monday from the Governor of the Bank of Japan sent the US Dollar back above the 114 level against the Japanese Yen.

Haruhiko Kuroda was speaking to BoJ branch managers in Tokyo and gave no hint whatsoever that any “exit” from Japan’s current, extraordinarily loose monetary settings is contemplated. Mr. Kuroda said that the domestic economy was “turning towards moderate expansion,” which was expected to continue. However, he also said that the BoJ will maintain its current mix of ultra-low interest rates, expansion of the monetary base and control of the yield curve for as long as needed to achieve 2% (annualized, consumer price) inflation “in a stable manner.”

There was no change of tone here whatsoever from the Governor.

With inflation running at just 0.4%, it is clear that the central bank still has much to do if the 2% target is to be hit and – at least as importantly – maintained.

The Bank of Japan’s balance sheet has been swollen by asset purchases to the point where it rivals the country’s entire Gross Domestic Product. As this portentous milestone approached some investors had hoped for a little detail on how the central bank might unwind its stimulus when the time comes. However, there seems little chance of any unwinding at this point.

Japanese Yen Weakens as BOJ Kuroda Stays Very Dovish

Another dovish speech from Kuroda, allied to expectations that the US Federal Reserve will trim its own $34.5 trillion balance sheet this year, were probably behind the US Dollar’s gain as the BoJ Governor spoke.

USD/JPY pushed back above the 114 handle as his remarks crossed the wires, having been steady earlier despite a mixed bag of Japanese data. This included a shock swoon for admittely volatile machine’orders in May.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX