BoJ's Uchida: US-Japan trade agreement is a big progress, helps reduce uncertainty
Bank of Japan Deputy Governor Shinichi Uchida said on Wednesday that the trade deal between the United States (US) and Japan is a big step forward and it helps reduce uncertainty for Japan's firms, per Reuters.
Key quotes
Will reflect trade agreement in next economic outlook report.
Uncertainty remains on tariffs impact towards the economy.
There is always upside, downside risks to the outlook.
Trade deal reduces uncertainty for Japan's firms.
But will need to monitor downside risks to the economy.
Market reaction
At the press time, the USD/JPY pair is up 0.23% on the day to trade at 146.97.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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