Exchange Rate Focus: Japanese Yen (JPY) Advances after BOJ Decision

Last week’s currency market turmoil has bled into trading over the last few days and the actions of several major central banks are being closely scrutinised. While economists and investors are waiting with baited breath for the European Central Bank’s potentially explosive policy announcement (due to take place tomorrow) the Yen was able to climb during the local session following the Bank of Japan’s interest rate announcement.

Some industry experts had expected the BOJ to add to October’s expanded stimulus plan, so the fact that it refrained from doing so was seen as Yen-positive and the Asian asset advanced. The BOJ may have lowered inflation forecasts, but the central bank deemed the current level of stimulus enough for the time being. The Yen accordingly jumped by 1.3% against the US Dollar and advanced on rivals like the Pound. The decision saw strategist Jeremy Stretch note; ‘They revised down the CPI forecast, so the actions and the language seem rather inconsistent. Some people were a little disappointed that there was no change. For me, the dip in Dollar-Yen provides a better level to go back in again.’

BOJ Governor Haruhiko Kuroda said of the decision; ‘Looking at wage negotiations and inflation expectations, fortunately there is no concern of Japan being beset by a deflationary mindset again. If Japan is making steady progress toward achieving 2% inflation, there’s no need to take additional steps.’ Japan also published its All Industry Activity Index, which increased by 0.1% on the month in November rather than stagnating as expected. Japan’s Coincident Index rose from 108.9 to 109.2 and the leading index was upwardly revised from 103.8 to 103.9. The final Machine Tool Orders figure was adjusted from 33.8% to 33.9%.

Further Japanese Yen exchange rate movement could be caused by the release of the Bank of Japan’s Monthly Economic Report. As it stands, the Yen is trading 1.38% higher against the Pound and strengthened to 117.3200 against the US Dollar.