The Bank of Japan has led the yen to a new low of decades, defying the global shift towards higher interest rates and vowing to keep bond yields at zero.
Hours after the central bank’s policy decision on Thursday, the yen fell 1.7% to ¥ 130.62 against the dollar, with the central bank promising to take daily action to protect its “around zero” target for 10-year bond yields.
With the US Federal Reserve to begin Upload lessons quicklyThe BoJ’s decision to stand firm will exacerbate the global gap in yields that has pushed the Yen to its lowest level Since the early 1970s in real terms.
The BoJ believes Japan’s basic economy is too fragile to tighten monetary policy, but it could upset politicians and the public because of the weak yen Raises the price Of imported goods.
“The central bank has not only reaffirmed its ionic stance, it has doubled its protection of the yield curve by committing to daily purchases of [bonds] “It’s actually turbocharging the policy deviation narrative,” said Benjamin Shatil, an FX strategist at JPMorgan in Tokyo.
The European Bank maintained a overnight interest rate of minus 0.1 percent. She said she would make daily purchases of 10-year bonds at a yield of 0.25%, unwilling to let the bonds trade in a wider range.
The decline of the yen to a 20-year low was consistent with what currency traders said was the “vulnerability” of the currency under the current BoJ policy.
During a press conference on Thursday afternoon, the Governor of the Central Bank, Haruhiko Kuroda, said that the Central Bank has not changed its view that a weak Yen is positive for the economy.
“But it’s also true that excessive currency volatility will create greater uncertainty for companies… And it will be negative for the economy,” Koroda said.
As the yen approached the level of ¥ 130 in recent weeks, a survey of Japanese companies by Tokyo Shoko Research found that a growing number of industries and companies began to see the yen fall As negative.
Currency traders suggested that the yen at a price of 130 yen to the dollar could cross a “sand line” for policymakers and provoke verbal intervention to prevent the currency from slipping too steeply and abruptly.
But FX analysts have asked whether the authorities will engage in such an effort, given its low likelihood of success as long as the BoJ Maintains its policy position.
In its quarterly forecast, the central bank said Japan’s economy “is likely to be under downward pressure” from rising commodity prices due to the Russian invasion of Ukraine.
The BoJ revised its inflation forecast upwards from 1.1% to 1.9% for the fiscal year to March 2023, reflecting the shock of rising commodity prices.
The risks to prices are skewed to “upside down for now, which mainly reflects uncertainty about energy prices,” it read, “but they are usually balanced afterwards.”
Mansour Mohi-Odin, chief economist at the Bank of Singapore, said the BoJ is not expected to make significant changes to its ionic position until Kuruda retires in April 2023.
“Kuroda has one last chance to move Japan on a path of stable inflation of 2 percent. The BoJ’s position may therefore push the yen to a new 20 – year low of between 130 and 135 yen against the dollar,” Mohi-Odin said.
Yen slides to ¥130 against the dollar after BoJ vows to keep bond yields at zero Source link Yen slides to ¥130 against the dollar after BoJ vows to keep bond yields at zero