Talking Points:

  • The Bank of Japan left its monetary levers alone for July, as expected
  • However, it also lowered its inflation forecasts yet again
  • Consumer prices are not seen reading 2% target until 2020/2021

Find out what the trading community thinks of the Japanese Yen’s chances and those of all major currencies, at the DailyFX sentiment page.

The Japanese Yen continued to weaken against the US Dollar after the Bank of Japan left monetary policy alone Thursday but moved its inflation expectations lower yet again.

The key Policy Balance Rate remains at -0.1%, the ten-year government bond yield target is still an unenticing 0.0%. Heavy bond-buying also remains in place, at an annual pace of JPY80 trillion (US$720 billion). However, the BOJ now sees consumer prices rising by 1.1% this fiscal year, rather than its previous 1.5% call. The rise for the next year is lowered to 1.5%, from 1.7% and for fiscal 2019 the BoJ now sees 1.8% inflation, down from 1.9%.

This means that inflation is not expected to get up to the 2% target rate until at least 2020/2021, which, judging by all the central bank’s policy rhetoric, also means that ultra-accommodative monetary policy is still here to stay. Inflation is currently running at an annualized 0.4%, and hasn’t been above 0.5% for twelve months. That’s despite the Bank of Japan having accumulated a bond balance sheet which rivals the country’s entire Gross Domestic Product.

The BoJ did increase its GDP forecasts Thursday. It now sees 1.8% growth this fiscal year, 1.4% in the next and 0.7% the year after that. Its previous calls were 1.6%, 1.3% and 0.7% respectively.

Still, with the decision out of the way, investor focus will turn to BoJ Governor Haruhiko Kuroda’s customary press conference to discuss it. That’s coming markets’ way at 06:30 GMT. USD/JPY had been gaining through the Asian morning and continued to after the numbers.

Japanese Yen Weakens as BOJ Holds, Lowers CPI Forecasts Again

Earlier official data showed that Japan’s export and import machines were in robust health last month, even though the overall trade balance missed forecasts as imports rose more than expected.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX