MONETARY POLICIES
This position has faced significant scrutiny - but at September’s meeting, the Bank of Japan board voted by a majority of 8-1 to maintain course. Specifically, it voted to keep interest rates at -0.1%; maintain government bond pu r ch a si n g programme to keep 10 year yields at 0%, while sticking to its commitment to buy ¥80 trillion worth of bonds every year.
One member of the Bank of Japan board voted against all other members. This was the newest member of the board, Goshi Kataoka, who believes the current stimulus pr o g ram m e will not push inf l a t i o n towards the 2% target by 2020. Inflation currently stands at 0,5% ( July 2017).
Japanese grew at its fastest rate in 24 months in Q2 of 2017 at 0.6%.
My prediction is that the Bank of Japan will stick to its plan for the foreseeable future. The current board (who have all been appointed
FX
banks are looking to tighten their monetary policy. Furthermore, the yen is suffering from a
‘risk
on’ sentiment that exists in the markets at the moment. As other central banks - such as the Federal Reserve - tighten their monetary policy, investors are shifting their capital
away
from safe haven assets such as the yen into private equities.
Conclusion
It’s interesting to
compare
The continuation BoJ policy will put further downward pressure on the Yen, especially as other central banks are looking to tighten their monetary policy
Most traders didn’t expect the Bank of Japan to change course at this juncture. Recent economic data actually shows the Japanese economy enjoying a prolonged period of growth. In fact, the
by Prime Minister Shinzō Abe) all favour using stimulus to encourage economic growth - which is why monetary policy direction won’t change anytime soon.
The continuation of this policy will put further downward pressure on the yen, especially as other central
the divergent approaches of both the Federal Reserve and the Bank of Japan - and the impact they have on their respective currencies. But in the main - both central banks are maintaining course for 2017. Volatility in the US dollar is
possible as President Trump attempts to progress his fiscal agenda; while continued pressure on the Japanese yen is to be expected.
Jarratt Davis
FX trader, Funds Manager Mentor and Author of
How to Trade a Currency Fund FX TRADER MAGAZINE October - December 2017 11
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