Japanese Yen Weakens as Bank of Japan Maintains Stimulus Easing Stance

The Japanese yen weakened against other major currencies on Tuesday as the Bank of Japan kept its interest rates unchanged and maintained its position on stimulus easing. The nation’s central bank also updated its outlook for inflation in 2017 and 2018, while keeping the 2019 forecast without a change.

Following its latest monetary policy meeting, the bank of Japan decided to keep the short term interest rate at minus 0.10%. Investors widely expected the decision, which was the result of an 8–1 vote. The central bank also kept its target for the yield of 10 year Japanese government bonds at 0%.

The Bank of Japan released an update for its inflation outlook following the decision. Projected core inflation for fiscal year 2017 was lowered to 0.8%, from 1.1% in the previous forecast. Expected core inflation for fiscal year 2018 was also lowered to 1.4% from 1.5%, while for fiscal year 2019, the bank maintained its outlook unchanged at 1.8%.

Estimates for the Japanese gross domestic product in 2017, 2018, and 2019 were also updated. For 2017, the Bank of Japan expects 1.8% growth rate, down from 1.9%, while the 2018 and 2019 outlook remained unchanged at 1.4% and 0.7%, respectively.

Demand for the Japanese yen dropped as investors saw that the gap between monetary policy in Japan and other nations in the G-7 group widened. The Bank of Japan appeared to support the continuation of monetary stimulus at a time when other major economies moved towards tighter monetary policies. This monetary policy difference between Japan and other major economies may persist in the next year, and traders expect it to weigh down on the yen.

USD/JPY traded at 113.40 as of 11:55 GMT on Tuesday after beginning the day at 113.13. The pair rose to 113.42 at 11:40 GMT, the highest level since yesterday.

EUR/JPY rose to 131.95, the pair’s highest level since yesterday, from 131.75 when trading began today.

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