Yen Weakens as BOJ Sticks With Ultra-Low Rates Policy Path
Comment of the Day

October 28 2022

Commentary by Eoin Treacy

Yen Weakens as BOJ Sticks With Ultra-Low Rates Policy Path

This article from Bloomberg may be of interest to subscribers. Here is a section:

In September, a sharp slide in the yen following the policy statement and dovish comments by Kuroda prompted Finance Minister Shunichi Suzuki to order Japan’s first entry into markets to prop up the currency in 24 years. While the governor moved the market again during Friday’s briefing, his tone was more cautious and his remarks weren’t preceded by falls in the currency like the previous month. 

Kuroda continues to hold firm as the last anchor of low global rates just a day after the European Central Bank went ahead with another jumbo rate hike. But the governor is walking on a tightrope as his stance risks putting further downward pressure on the yen despite billions of dollars spent by the government to support the currency.  

“The likelihood of the BOJ pivoting toward tightening is still small as Japan’s inflation is not broad based at all and is only rising about a third of the pace seen in Europe and US,” said Kyohei Morita, chief Japan economist at Nomura Securities.

Eoin Treacy's view

The speed of the Yen’s decline since March has alarmed politicians and not least because the price of oil is in the region of the 2008 peak when redenominated into the currency. The Bank of Japan’s challenge is much of the inflation is imported. Domestic demand needs a cultural change and that will not be achieved by transient price pressures.
The BoJ is embracing inflation because they see it as the only chance they have to snap domestic demand out of secular somnambulance. So far the Yen’s rally is relatively similar sized to the September range and the sequences of ranges up above another is still intact.
Meanwhile, the ECB expressed some reticence to continuing raising rates in their statement yesterday. That was before German inflation surged to 11.6% today which exceeded expectations. That’s going to reenforce pressure on the ECB to be more aggressive in raising rates The Euro continues to pause near parity. 

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