Following the January monetary policy review meeting held this Tuesday, members of the Board of the Bank of Japan (BoJ) decided not to introduce changes to the current monetary policy.
He Japanese central bank kept the 10-year JGB interest rate and yield target stable at -10 basis points and 0%, respectively. The Bank of Japan maintains its yield curve control policywhich allows the yield on 10-year government bonds to be around 1%.
The BoJ maintains its monetary policy guidelines unchanged.
BoJ quarterly report
“Risks to economic activity are broadly balanced.”
“We need to closely monitor whether the virtuous cycle between wages and prices intensifies.”
“We will continue QQE with YCC as long as necessary.”
“We will not hesitate to take additional easing measures if necessary.”
“The BoJ will patiently continue monetary easing while nimbly responding to developments.”
“The Japanese financial system has maintained overall stability.”
“Uncertainty remains, but the probability of achieving sustained 2% inflation continues to gradually increase“.
“The Japanese economy is likely to continue to recover moderately.”
“We must be attentive to the movements of the financial and currency markets and their impact on Japan's economy and prices.”
“Inflation expectations gradually rise.”
“Core consumer inflation moves below 2.5%, partly reflecting the moderate rise in service prices.”
“Consumption continues to increase moderately.”
Market reaction to BoJ monetary policy announcement
USD/JPY has fallen sharply following the announcement, plunging from around the 148.55 area where it previously moved to 146.98, a new one-week low. At the time of writing, the pair is trading above 147.14, losing 0.61% so far this day.
Frequently Asked Questions about the Japanese Yen
What factors determine the price of the Japanese Yen?
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.
How do decisions by the Bank of Japan affect the Japanese Yen?
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.
How does the spread between Japanese bond yields and US bond yields affect the Japanese Yen?
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.
How does general risk sentiment influence 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
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
