Talking Points:
- BoJ Governor Kuroda said very little that was in any way new when he spoke in Nagoya
- He was upbeat on the economy, forthright that loose monetary conditions would endure
- However Yen bears clearly found something here to spur them on
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The Japanese Yen slipped to its weakest levels against the US Dollar since March on Monday as Bank of Japan Governor Haruhiko Kuroda spoke.
The move was perhaps a little puzzling as Kuroda had at face value nothing new to offer financial markets. Speaking in Nagoya, he recommitted the BoJ to “persistent” and “powerful” monetary easing. He also admitted that there is still a long way to go if the 2%-annualized inflation target is to be met. But these are very much verses from the song he usually sings about monetary policy, and it’s hard to think of a song which investors have heard more often.
He was also upbeat about Japanese economic prospects, saying that the country was enjoying growth driven by well-balanced external and domestic demand. Again though, this is pretty much standard fare from the BoJ chief. He said that households in Japan were becoming more accepting of price hikes, something which he hoped would feed in to the higher inflation expectations which the BoJ has been at such pains to generate – so far with very little success.
Still, Yen bears clearly found something to like here. It’s possible that, with Japanese consumer prices at least heading in the right direction and nervous glances being cast at the BoJ’s bloated balance sheet, some investors were expecting a reduction in the monetary rhetoric. In any case, USD/JPY got a boost.
Earlier Monday, minutes of the BoJ’s last monetary policy meeting entirely passed the market by, as well they might have given the lack of changes since the last set. The country’s October service sector Purchasing Managers Index also had minimal impact even though it came in strong and, indeed, hit a two-year high of 53.4. In the logic of PMI surveys, any reading above the 50 level signifies expansion for the sector in question.
More broadly, USD/JPY has regained a little upward momentum after the more rangebound trade seen since late October.
The narrative of a Federal Reserve keen to raise interest rates as long as the data permit – even if that doesn’t turn out to be very far – contrasts sharply with the Bank of Japan’s position.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
