Forex Flash: Policy hopes to continue dictating yen moves for now - BTMU
FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that the Yen is weaker today in part on a warning from Fitch that it may downgrade Japan without policy action to reduce its debt burden.
He notes that this followed Yen gains yesterday beyond the 87.00 level against the dollar, reflecting some early signs of profit-taking after the recent notable sell-off. As highlighted here already this week, there has been some evidence of back-tracking by government officials who appear to have softened their calls for a weaker yen by suggesting levels between 85.00-90.00 are acceptable.
He writes, "The Nikkei is now reporting that the planned shift from a price stability mandate for the BOJ to a specific price target of 2.0% may not include a defined period of time in which to achieve the level. This makes sense to us as to set a time frame of say two years would be unachievable but would force the BOJ into policy actions that might destabilise the JGB market and prove counter-productive."
Halpenny suspects that BOJ will certainly be fighting behind the scenes to set a target that is deemed credible and one without a defined time frame would certainly be more credible. The last time Japan achieved a nationwide annual inflation rate over 2.0% for a sustained period of time was in 1990-91. The Nikkei article is also consistent with Finance Minister Aso's comment last week that a formal inflation accord between the government and the BOJ might not be necessary if the Council of Economic and Fiscal Policy meets regularly.
He finishes by writing, "The gathering of policy-makers and business leaders to discuss policy takes place today for the first time in four years. The Abe government views this get-together as a way to work more closely with the central bank. The bias for the yen might be turning away from yen selling although with the BOJ monetary policy meeting on 22nd January, any correction may well be contained ahead of this key meeting."
He notes that this followed Yen gains yesterday beyond the 87.00 level against the dollar, reflecting some early signs of profit-taking after the recent notable sell-off. As highlighted here already this week, there has been some evidence of back-tracking by government officials who appear to have softened their calls for a weaker yen by suggesting levels between 85.00-90.00 are acceptable.
He writes, "The Nikkei is now reporting that the planned shift from a price stability mandate for the BOJ to a specific price target of 2.0% may not include a defined period of time in which to achieve the level. This makes sense to us as to set a time frame of say two years would be unachievable but would force the BOJ into policy actions that might destabilise the JGB market and prove counter-productive."
Halpenny suspects that BOJ will certainly be fighting behind the scenes to set a target that is deemed credible and one without a defined time frame would certainly be more credible. The last time Japan achieved a nationwide annual inflation rate over 2.0% for a sustained period of time was in 1990-91. The Nikkei article is also consistent with Finance Minister Aso's comment last week that a formal inflation accord between the government and the BOJ might not be necessary if the Council of Economic and Fiscal Policy meets regularly.
He finishes by writing, "The gathering of policy-makers and business leaders to discuss policy takes place today for the first time in four years. The Abe government views this get-together as a way to work more closely with the central bank. The bias for the yen might be turning away from yen selling although with the BOJ monetary policy meeting on 22nd January, any correction may well be contained ahead of this key meeting."
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