BoJ hawkish outlook expected in this weeks Monetary Policy meeting

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The Bank of Japan will be holding its monetary policy meeting later this week on Friday. The BoJ’s meeting comes on the heels of the ECB meeting on Thursday. While no changes to interest rates are expected from the BoJ, the central bank’s statement is likely to garner a lot of attention.

The markets continue to flip-flop on the Japanese yen over the past week as investors try to interpret the comments from the central bank officials. Earlier last week, on Friday, the Bank of Japan Governor, Kuroda who was given a fresh five year term said that the central bank would discuss “in principle” an exit policy from its currently aggressive monetary policy.

The easing is speculated to start during the fiscal year of 2019, provided Japan’s inflation reaches the central bank’s 2% target rate. Kuroda who appeared before a committee from the lower house gave his vision over the next five years following his renewal.

The BoJ governor said that the central bank was not yet considering any concrete plans for an exit strategy given the fact that consumer prices in Japan still remain far below the 2% inflation target rate.

Speaking to lawmakers, Kuroda said, “If we decide that there is sufficient momentum toward the 2 percent inflation goal, and if there is a need, … we will consider adjusting monetary policy.”

Earlier on Friday last week, Japan’s unemployment data was also released. According to official data, Japan’s unemployment rate was seen falling to a 24-year low at 2.4% in the month of January at an annual pace. Job availability was seen staying put at a four decade high.

The unemployment data suggested that Japanese companies were facing intense competition to secure the workers as the economy was seen to be enjoying the second longest stretch of expansion.

The tightening of the labor market gave hopes to the fact that wage growth might also grow in the coming months. A higher wage growth is expected to put upward pressure on inflation.

Data showed that Japan’s unemployment rate 0.3% from December to 2.4% in January.

Kuroda also touched upon the unemployment data. He told the lawmakers that “the unemployment rate was an astonishing 2.4 percent, and while wages and inflation have remained weak, we are no longer in a deflationary state.”

He said that based on the data, he expects to see momentum rising as the economy is expected to head closer to the 2% inflation target.

The central bank was also seen making changes to its near term bond purchases which also led to some speculation that the next policy move from the BoJ could be a case of tightening instead of further easing.

While the Japanese yen had initially reacted strongly to such market operations, the impact last week was limited.

The Japanese yen was seen to be trading largely stable, although many market watchers are starting to get more confident calling this year as the “year of the yen.”

This comes amid some of the major banks have lowered their forecasts on the U.S. dollar which is expected to remain in a bearish trend. A strong yen, which is the view of many analysts is expected to make imports cheaper. This could however potentially backfire as lower cost of imports could undermine the central bank’s efforts to stoke inflation.

Some of the top analysts have gone as far as to note that the central bank is likely to run out of further easing ammunition and this could potentially result in the Japanese yen turning out to be the top performing currency of the year. This is partly true as past BoJ meetings revealed that some officials expressed concerns on the continued easing efforts which are expected to have negative impact on the Japanese financial markets.


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