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Japan: Economy expected to continue moderate recovery

He Japanese Minister of Economy, Yoshitaka Shindodeclared on Thursday that The Japanese economy is expected to continue to recover moderately. Shindo further stated that he will closely monitor risks related to exchange rate fluctuations that would drive up domestic prices.

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“The economy is expected to continue a moderate recovery.”

“We need to pay close attention to the risks related to currency fluctuations that would drive up domestic prices.”

“We also need to pay close attention to the risks of a slowdown in the global economy, such as the outlook for the Chinese economy and oil prices due to instability in the Middle East.”

“The Government will continue to make comprehensive efforts to ensure that robust wage increases are extended to small and medium-sized businesses.”

Japanese Yen FAQ

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 yield of Japanese and US bonds, or the risk sentiment of operators, among other factors. .

One of the Bank of Japan's mandates is currency control, so its movements are key for the yen. The BoJ has intervened directly in currency markets on some occasions, usually to lower the value of the yen, although it often refrains from doing so due to political concerns among its major trading partners. The BoJ's current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the yen to depreciate against its major peers. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and the other major central banks, which have chosen to sharply increase interest rates to combat inflation levels that are at their highest levels for decades.

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