Japanese Yen Talking Points
The Japanese Yen has gained against most of its major counterparts even though the Bank of Japan (BoJ) sticks to its Quantitative and Qualitative Monetary Easing (QQE) with YieldCurve Control program in September, and the funding-currency may continue to appreciate over the remainder of the month as the central bank appears to be in no rush to alter the path for monetary policy.
Fundamental Forecast for Japanese Yen: Bullish
The Japanese Yen may continue to exhibit a bullish behavior over the coming days as USD/JPY trades to a fresh monthly low (104.53) following the BoJ interest rate decision, and the exchange rate appears to be on track to test the July low (104.19) as the central bank looks poised to retain the current policy for the foreseeable future.
It seems as though the BoJ will rely on its current tools to support the recovery from COVID-19 as “Japan’s economy has started to pick up with economic activity resuming gradually,” and Governor Haruhiko Kuroda and Co. may continue to endorse a wait-and-see approach despite the slowdown in the Consumer Price Index (CPI).
The BoJ warns that “the year-on-year rate of change in the CPI (all items less fresh food) is likely to be negative for the timebeing, mainly affected by COVID-19 and the past decline in crude oil prices,” but goes onto say that inflation is “expected to turn positive and then increase gradually, as downward pressure on prices isprojected to wane gradually.”
The comments suggest the BoJ will refrain from responding to negative price growth even though the central bank retains a 2% target for inflation, and Governor Kuroda and Co. may ultimately stick to the same script at the next meeting on October 29 as the economy is expected to “follow an improving trend.”
In turn, it remains to be seen if fresh developments coming out of Japan will sway the monetary policy outlook as Governor Kuroda insists that “the BoJ will continue to solidly cooperate with the government as it manages policy,” and current market trends may persist throughout the remainder of the year as the Federal Reserve’s longer run interest rate forecast remains unchanged from the June meeting.
With that said, the fundamental outlook for the Japanese Yen may continue to shift as the BoJ tames speculation for additional monetary support, and the funding-currency may exhibit a bullish behavior over the coming day as USD/JPY snaps the range bound price action from earlier this month.
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong