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BoJ’s Ueda: It is important to reduce JGB purchases in a predictable manner

At the press conference following Friday’s monetary policy meeting, Bank of Japan (BoJ) Governor Kazuo Uedasaid the Bank “decided to reduce JGB purchases to ensure that long-term yields are formed more freely in the markets.”

The BoJ kept the interest rate at 0% for the second consecutive meeting in June.

Additional Appointments

Important to reduce JGB purchases in a predictable manner, while ensuring flexibility to take into account stability in the bond market.

Economic and price uncertainties in Japan remain high.

Due attention should be paid to the financial and currency markets, and the impact on Japan’s economy and prices.

The reduction in JGB purchases will be of considerable volume.

The specific amount and framework of JGB’s purchase reduction will be decided by listening to the opinion of market participants.

The reduction of JGB purchases will begin immediately after deciding at the next monetary policy meeting.

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Market reaction

USD/JPY maintains gains near six-week highs following these comments. The pair was last seen 0.70% higher on the day at 158.18.

The Japanese Yen FAQs

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of Japanese and US bonds or the risk sentiment among traders, among other factors.

One of the mandates of the Bank of Japan is currency control, so its movements are key for the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the depreciation of the Yen against its main currency pairs. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.

The Bank of Japan’s ultra-loose monetary policy stance has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This favors the widening of the spread between US and Japanese 10-year bonds, which favors the Dollar against the Yen.

The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.

Source: Fx Street

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