Despite the Bank of Japan’s efforts to hold the yen steady, the pair has been weak against the dollar in recent months. In fact, the Japanese yen has dropped to its lowest level against the dollar since August 1998. The Bank of Japan has pledged to maintain ultra-low interest rates, and has also vowed to keep its 0.25% cap on domestic bond yields.
The Japanese government has been weighing how to act on a declining yen. If the yen continues to fall, it could cause harm to Japanese companies, such as utilities and food companies. It also may weaken Japan’s competitive edge. The government is looking to reduce the volatility of the Japanese economy, and could intervene to slow the decline of the yen.
The Bank of Japan has been trying to correct its low inflation rate. Last week, the central bank’s governor said it would keep its forward guidance at current levels for two to three years. However, it’s still way off its goal of 2% inflation by April 2023. The BOJ is also expected to keep its benchmark interest rate at negative 0.1%. In addition to its ultra-easy policy, the Bank of Japan has capped yields on 10-year Japanese government bonds at 0.25%, which is lower than the US rate. This has helped to drive the yen lower against other major currencies.
But the BOJ’s commitment to ultra-easy policy is not likely to last. The Bank of Japan needs to convince policymakers that its economic recovery is sustainable. It’s also going to need to do more to cement inflation in the minds of businesses and consumers. It’s also going to need to make sure inflation doesn’t fall below its 2% goal.
The yen has been plunging against most major Asian currencies. In fact, it’s lost about 9% of its value so far in the year. This has sparked speculation that the Japanese yen may be losing its appeal as a safe haven. The Bank of Japan is still using ultra-low interest rates to help the economy, but it’s facing increasing pressure to tighten the policy. In fact, the yen has been losing its appeal to investors as they shun Japanese bonds.
The Bank of Japan is also expected to keep its monetary policy on hold for another year. The Bank of Japan will meet next week and policymakers will have to make the case that its economic recovery is sustainable and inflation is cost-push. If they succeed, the yen could bounce back. However, if they fail, the yen could drop further.
The BOJ has been focusing on raising wage prices and keeping inflation above 2%. But the BOJ also has to take into account the wider effects of its monetary policy. For instance, the yen’s performance against the dollar has been aided by ultra-low interest rates. The BoJ’s monetary policy will have to adjust to the FX moves. It could also end up drawing criticism from developed nations