Currency Analyst since 2010

JPY: the BOJ is still expected to ease

 Mark Jensen

The new survey conducted by Bloomberg news showed that despite improving economy and concerns about weak yen, the majority of the economists (16 out of 24) expect the Bank of Japan to expand monetary stimulus this year.

Recently there have been reports that some officials of the Japanese central bank fear that if the regulator prints more money, this will provoke more declines in the yen (JPY lost about 8% versus USD since Oct. 31, 2014, when the BOJ last increased stimulus) affecting consumer confidence and increasing the cost of imports.

As there will be nationwide local elections in April, Japanese authorities may want to try to keep yen from further decreases. The positive effects of the lower yen are already visible: Japan’s exports rose by 12.8% in December. As a result, the Bank of Japan may decide that the yen has weakened enough for now.

However, the problem lies in inflation: the key inflation indicator used by the Bank of Japan declined to 0.5% in December compared with the BOJ’s 2% target. That’s why 11 of the surveyed economists expect the central bank to act by the end of October: 2 think that the BOJ will ease policy in April, 4 think that this will happen in July, while 5 name October as the likely time period.

A possible conclusion is that deep retracements down in USD/JPY are unlikely.

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