New Governor in town
The Japanese Yen has attracted a lot of economic commentary over the past few months. The Yen had been losing significant ground on markets as the Bank of Japan clung to ultra-loose monetary policy. Even in an environment of rising global inflation, the central bank kept rates low and kept the monetary financing taps on. If you recall, the Bank of Japan not only held record low benchmark rates, but had also employed a relatively new tool of yield curve control. This ensured that virtually no corner of the fixed income market could produce rising yields and increase the cost of borrowing beyond the central bank’s intention. In the BoJ’s defence, inflationary pressures domestically were limited by global standards.
Whilst double digit inflation was becoming commonplace in many developed markets, Japan’s inflation rate did not see such a sharp spike. Instead, a gradually rising price level has characterised economic conditions in Japan over the past year. The expectation had been that with a handover of governorship at the BoJ, policy adjustment might be in store and rates may finally be allowed to rise. This week will see the new Governor Ueda provide the latest monetary policy decision for his bank and country. The decision on Friday will test market’s conviction behind the need for monetary adjustment in Japan and their guess that the change of policy maker at the helm will herald in that change.
There are some risks to this theory. Firstly, there is a lot of data in Japan due for release ahead of the decision. If that data, concerning high salience statistics including GDP and inflation itself, paints a picture of a residing inflationary pressure in Japan it may fuel a continuance of dovish monetary policy. Implied volatility across the entire FX market has been falling with lower realised volatilities. This calm (for now) may also limit the need to adjust policy for fear of further volatility and value losses within the Japanese Yen from the perspective of the central bank. Many analysts are also warning that the new Governor may wait until the next policy meeting in April before rocking the boat. However, any hint towards an adjustment in policy rates during his tenure could change the Yen’s course significantly.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – A revised 2024
Charles Porter
Thu 21 Sep 2023
A revised 2024 The Dollar opens stronger this morning following the Federal Reserve’s decision last night. The decision confirmed interest rates were to stay on hold following this meeting. As we have highlighted following previous decisions, the forward guidance offered by the Chair Jay Powell was once again underwhelming. However, the Dollar’s bid this morning […]
Morning Brief – GBP
Humphrey Percy
Fri 22 Sep 2023
GBP While the Bank of England’s decision to pause on raising rates by the narrowest of margins with voting 5-4, that resulted in GBP being sold sharply which reflects the market’s view that while inflation at 6.7% looked better than expected yesterday, the effect of higher oil prices and petrol and diesel at the pumps […]
Morning Brief – OECD
Humphrey Percy
Wed 20 Sep 2023
OECD Those fun loving folk at the Organisation for Economic and Cultural Development are at it again by forecasting that the UK will in 2023 stand at the very top of the G7 for….our rate of inflation at 7.2% which is a great deal more than the promised rate by the UK Government for the […]
