The yen declined against the greenback yesterday as the market anticipates the Bank of Japan to reaffirm its pledge to follow ultra-loose monetary policy. The Bank of Japan began a two-day policy meeting yesterday. The Central is expected to take measures that prevent the yen from strengthening further as the US Fed is widely expected to announce a rate cut this week at the end of the monetary policy meeting. Financial market participants are also closely monitoring the US-China trade discussions which are anticipated to begin tomorrow. From a low of 108.45, the USD/JPY pair rose to a high of 108.90 in the past 24 hours.
The yen was unable to take advantage of higher than anticipated retail sales reported by Japan’s Ministry of Economy, Trade, and Industry. The statistical organization stated that retail sales increased 0.5% in June, after rising 1.3% in the earlier month. Analysts had anticipated the retail sales to increase by 0.2%.
Before the Bank of Japan’s monetary policy meeting began yesterday, the Japanese Cabinet Office forecast its outlook for fiscal 2019 and 2020. The cabinet office lowered the FY 2019 real GDP growth forecast to 0.9% from 1.3% issued earlier. For FY20, the real GDP growth outlook was pegged at 1.2%. For fiscal 2019, consumer inflation is forecast to be 0.7%. Likewise, for fiscal 2020, consumer inflation is anticipated to be 0.8%.
However, Prime Minister Shinzo Abe is optimistic that the budget for the upcoming fiscal year “should help expand demand and secure sustainable growth led by private-sector demand.”
The BOJ is under stress to further relax monetary policy as its counterparts in the US and Europe have repeatedly stated that they would lower interest rates to maintain economic expansion. The European Central Bank reported last week that it would look at a variety of stimulus alternatives, including interest rate cuts. At the end of its two-day monitory policy meeting on Wednesday, the US Federal Reserve is widely expected to slash interest rates.
Some central bank representatives are worried that merely rejigging its post-meeting declaration may only contribute to the common perspective that the BOJ has no tools left to boost financial stimulus to the economy, which is facing an uncertain global economic outlook.
After six years of vigorous monetary easing under Governor Haruhiko Kuroda, the BOJ has already reduced the short-term benchmark interest rate to -0.1% in order to attain its 2% inflation target. In April, it promised to maintain interest rates “exceptionally small” at least until spring 2020 while anticipating inflation to stay below the threshold in the years ahead.
In today’s session, according to insiders who are aware of the bank’s plan, the BOJ Policy Board could create a minor change to the forward guidelines by sticking to maintaining ultralow rates for a longer time, perhaps until 2020. While giving a lecture last week in Washington, Kuroda stated that the BOJ would discuss further monetary easing measures, in case growing frictions in the global economy impact Japan’s economy and rates.
The demand for safe-haven assets and ultra-loose monetary policy decision by the Bank of Japan is anticipated to keep the yen range-bound with a slight bearish bias.
Technically, the USD/JPY pair has started rising after testing support at 107.80. The currency pair is trading above its 50-day moving average. Additionally, the momentum indicator is rising. As a result, we can expect the USD/JPY pair to move up in the short-term.
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