Yen Dips After Bank Of Japan Holds The Course

10/28/2022

1 minute read

2022.10.28 15:11

MarketPulse

is in positive territory today. In the European session, the yen is trading at 146.94, up 0.47%.

BoJ maintains policy

All eyes were on the Bank of Japan, which wrapped up a crucial 2-day policy meeting on Friday. The meeting came just days after Japan’s Ministry of Finance (MOF) intervened in the currency markets after the yen had fallen close to the 152 line, a new 32-year low. Finance Minister Shunichi Suzuki would not confirm that the MOF had intervened for the second time in two months, but issued a blunt warning, declaring that the government was “facing off with speculators via markets.”

This set the stage for today’s BOJ meeting. In the end, it was business as usual, as the Bank maintained ultra-low interest rates and kept its dovish guidance. The BoJ remains an outlier with its loose policy, as most other major central banks are tightening in order to curb inflation. What was noteworthy was that the central bank revised upwards its inflation forecast for fiscal 2023. Headline inflation was raised to 1.6%, up from 1.4% in July, and core inflation to 2.9%, up from 2.3% in July, with the BoJ warning that risks were skewed to the upside. The Bank also lowered its growth forecast for fiscal 2022 and 2023.

Inflation has pushed above the BoJ’s target of 2%, but BOJ Governor Kuroda has insisted that he will not consider tightening policy until it is clear that inflation is sustainable. There was a hint from the Bank that this may not be so far off, as today’s BOJ quarterly report, noted that rising inflation is expected to “lead to sustained price rises accompanied by wage gains”.

The yen has paid the price for the BoJ’s ultra-loose policy, tumbling some 20% against the dollar this year. With the BoJ making it clear that it won’t be throwing any lifelines to the yen, the currency will be under pressure from the widening US/Japan rate differential, unless the MoF continues to intervene in the currency markets.

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