Progress in COVID-19 Vaccine Development Drives Yen Higher vs. Safe Peers, BoJ Stands Pat

The Japanese yen traded flat or little lower versus the majority of other most-traded currencies today but gained on other safe currencies, like the US dollar and the Swiss franc. The main event in Japan today was the monetary policy announcement from the Bank of Japan.
One of the major pieces of news today was the promising results from the COVID-19 vaccine developed by the biotechnology company Moderna together with the US National Institutes of Health. The vaccine produced antibodies in all patients tested, while the side effects were not strong enough to halt the testing. It is expected that Phase 3 of the trial for the drug will begin later this month. The news brought hope for an end of the coronavirus pandemic and return to the norm. That made investors more willing to risk and ignore safer assets.
As was widely expected, the BoJ kept its monetary policy unchanged, with the benchmark interest rate staying at -0.1%. The central bank also continued to purchase the Japanese government bonds with the aim to keep the 10-year yield at about zero percent. The bank also updated its economic forecasts. The BoJ said:

Japan’s economy is likely to improve gradually from the second half of this year with economic activity resuming, but the pace is expected to be only moderate while the impact of the novel coronavirus (COVID-19) remains worldwide. Thereafter, as the impact subsides globally, the economy is projected to keep improving further with overseas economies returning to a steady growth path.

The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is likely to be negative for the time being, mainly affected by COVID-19 and the past decline in crude oil prices. Thereafter, it is expected to turn positive and then increase gradually, since downward pressure on prices is projected to wane gradually along with economic improvement and the effects of the decline in crude oil prices are likely to dissipate.

The outlook for growth of gross domestic product in 2020 was revised lower to -5.7% — -4.5% compared with the previous estimates of -5.0% — -3.0%. Forecasts for 2021 and 2022, on the other hand, were upgraded, from 2.8% — 3.9% to 3.0% — 4.0% and from 0.8% — 1.6% to 1.3% — 1.6% respectively.
USD/JPY dropped from 107.22 to 106.77 as of 13:09 GMT today. EUR/JPY traded at about 122.15 after opening at 122.23 and rising to the daily high of 122.50. CHF/JPY slumped from 114.07 to 113.35.
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