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Japanese Yen Slips As BOJ Sticks With Settings, Lowers CPI Call

Japanese Yen Slips As BOJ Sticks With Settings, Lowers CPI Call

David Cottle, Analyst


Talking Points:

  • The Bank of Japan left all its monetary settings alone, as had been expected
  • It trimmed its inflation forecast though
  • Focus will now shift to Governor Kuroda’s comments due around the European open

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The Japanese Yen slipped just a little against the US Dollar Tuesday as the Bank of Japan left its monetary policy settings alone, as expected.

The Policy Balance Rate stays at -0.1%, the ten-year Japanese Government Bond (JGB) yield curve target remains at 0.0% and the BOJ will still increase its own holdings at an annual pace of JPY80 trillion, or thereabouts. The nine-member monetary policy committee voted to maintain the former settings by a majority of eight.

The BoJ also lowered its Consumer Price Index inflation forecasts and now sees CPI running at 0.8% this fiscal year, from the 1.1% projected in July. Gross Domestic Product growth forecasts were revised higher with the BoJ now tipping a 1.9% gain in fiscal 2017/18. That’s above July’s projected 1.8% advance.

BoJ officials have repeatedly stated that monetary policy will remain loose until the annualised CPI rate hits 2% and stays around that level. It is currently running at just 0.7%.

All up, this decision came out pretty much as expected all around. The CPI forecast downgrade was not a great shock but may well be behind the Yen’s weakness in the immediate aftermath.

Enduring inflation weakness will make the BoJ’s resolutely easy policy more of a contrast with that of many other developed-market central banks. The US Federal Reserve is epected to raise interest rates once again in December, with the Bank of England tipped to do so on Thursday. The European Central Bank is also expected to slowly withdraw its own post-crisis monetary accommodation.

USD/JPY has suffered from a loss of momentum this week which saw it break below the uptrend channel which has marked its rise since September 8. Speculation that US President Donald Trump may choose a less-hawkish option as successor to Federal Reserve Chair Janet Yellen- whose term expires next year- has weighed a little on the pair. At present Fed Governor Jerome Powell looks like the front-runner for the job.

Investors will also be waiting until Wednesday when they will know the Fed’s monetary policy decision for this month- woth no changes expected.

However, USD/JPY would appear to have firm support from interest-rate differentials and it is hard to see it falling heavily from here without some nasty surprises.

--- 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.