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    Japan's Kanda: Important for forex rates to move stably reflecting fundamentals

    Source Fxstreet
    Jan 25, 2024 04:59

    Japan's top currency diplomat Masato Kanda commented on the weaker Japanese Yen (JPY) on Thursday. Kanda stated that it’s important for FX to move stably, reflecting fundamentals.

    Key quotes

    “Strong market interest in US rate cut timing and BOJ policy outlook, both of which could be used by speculators as an excuse for volatile market moves.”

    “Always communicate closely with financial authorities, including the BOJ and the Fed.”

    "Declines to comment on BOJ policy beyond saying it is among 'important events' when asked about ending negative interest rates.

    “Always carefully watch the impact of central bank decisions on financial markets;  will continue to do so.”

    "It is important for currency exchange rates to move stably, reflecting economic fundamentals.”

    “Ultra-loose monetary policy helped pull the economy out of a deflationary state but also had negative side effects.”

    “US economy is stronger than expected, but if tight monetary policy is prolonged, that could hurt domestic consumption, become a risk to global growth.”

    Market reaction

    A mild verbal intervention by Japan's top currency diplomat Masato Kanda had little to no impact on the Japanese Yen's performance against its rivals. At the time of writing, USD/JPY is trading at 147.77, gaining 0.07% on the day.

    Bank of Japan FAQs

    What is the Bank of Japan?

    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%.

    What has been the Bank of Japan’s policy?

    The Bank of Japan has embarked in an ultra-loose monetary policy since 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.

    How do Bank of Japan’s decisions influence the Japanese Yen?

    The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

    Is the Bank of Japan’s ultra-loose policy likely to change soon?

    A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

    Disclaimer: For information purposes only. Past performance is not indicative of future results.
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