The Bank of Japan met earlier today and decided to keep its monetary policy on hold while reflecting on the falling crude oil prices which could pose a threat to the BoJ’s efforts to boost inflation. At its March monetary policy meeting, the Bank of Japan kept its monetary stimulus package at the steady 80 trillion Yen while commenting that inflation could likely fall to zero in the near term. The dovish views on inflation come starkly in contrast to the comments from the previous/last month’s BoJ statement where the Central Bank noted that inflation was likely to slow, reflecting in part that the Japanese Central Bank would prefer to sit through the current slump.
The Central Bank however reiterated on the modest economic recovery.
The policy move or inaction by the Bank of Japan was in line with the general consensus as Japan’s spring wage negotiations kick in. The BoJ Governor Kuroda as well as the Japanese Premier, Shinzo Abe have been urging Japanese companies to lift wages and it will be left to be seen how the outcome of the wage negotiations will turn out.
The corporate companies in Japan negotiate the base wages with the trade unions ahead of the fiscal year which starts in April. According to estimates, a basic increase of 1% in wages is required in order to sustain the Japanese economy as well as to help give consumer inflation a boost.
Given the above view, some economists expect the BoJ could act as early as April this year or in May to expand its monetary stimulus program from the current 80 trillion Yen to 90 trillion Yen, should Crude oil prices which failed to keep up its momentum continue to fall. However, with prices in energy stabilizing for the most part it is likely that the BoJ would rather wait and watch than jump the gun.
The Yen was little changed on the news and continued to trade mixed across the board. From the weekly charts, we notice that while USDJPY is poised to continue making new gains, the Yen has been considerably stronger against weaker currencies such as the Euro and the British Sterling, while continuing to be mixed on the commodity risk currencies.
In the run up to the Federal Reserve’s FOMC meeting tomorrow, the Yen is likely to gain momentum as investors seek caution ahead of the FOMC’s volatility.
