The Japanese yen dropped today even as the Bank of Japan refrained from expanding its already significant stimulus program at today’s policy meeting. Japanese policy makers were concerned that actions of the European Central Bank will make the yen appreciate against the euro, and this would not be welcomed by the BoJ officials who were striving to weaken the Japanese currency.
As was expected, the Japanese central bank left its interest rates and the size of asset purchases unchanged. The bank had positive view on the economy at present, saying in the statement:
Japan’s economy has continued to recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed.
As for the future of the economy, the wording was almost the same:
With regard to the outlook, Japan’s economy is expected to continue a moderate recovery as a trend, while it will be affected by the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike.
The BoJ expects that inflation will be around 1.25 percent level “for some time”, below the target 2 percent.
BoJ Governor Haruhiko Kuroda was speaking at the press-conference after the policy meeting, voicing concern about the recent actions of the ECB that were clearly aimed at weakening the euro. Kuroda is concerned about potential appreciation of the yen against the shared 18-nation currency, an unwelcomed outcome for Japanese policy makers who want to weaken their currency too. The Governor said:
If the euro depreciated by 10 or 20 percent, the BoJ could not ignore this because of the implications for inflation in Japan. If it’s really serious, the BoJ could consider taking some action.
Such comments suggest that the central bank does not rule out additional accommodative measures.
USD/JPY jumped from 101.68 to 102.02, and GBP/JPY climbed from 172.11 to 172.93 as of 11:31 GMT today. EUR/JPY was up from 137.81 to 138.55 before trading at 138.04.
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