The Bank of Japan raised its inflation forecast at Thursday’s meeting, but left its extremely low interest rates unchanged and warned of risks to the outlook for the economy. That means it will remain the black sheep among key central banks tightening monetary policy.
The BoJ lowered its GDP growth forecast and raised its inflation forecast. As expected, the Bank of Japan left the short-term interest rate at -0.1% and the yield target for 10-year government bonds at about 0%. Eight of the nine board members voted in favor of the decision.
The bank also raised its core inflation forecast for the current fiscal year ending March 2023 to 2.3% from 1.9% and for the next fiscal year to 1.4% from 1.1%. The bank lowered its GDP growth forecast for this fiscal year to 2.4% from 2.9%.
“It’s important that companies, whose profits have risen because of the weakening yen, increase capital investment and raise wages. This will reinforce the positive cycle in which rising profits lead to higher spending. With the rapid exchange rate changes that we are witnessing now, companies may be wary of making capital investments. Therefore a sharp weakening of the yen is undesirable. We will work closely with the government to monitor closely the dynamics of currencies and their impact on the economy,” said Bank of Japan Governor Haruhiko Kuroda at a press conference following the meeting.
Japan revealed the “disastrous” consequences of the sanctions battle.
“We expect companies to continue to pass on (rising) costs to consumers…It should be noted that short-term inflation expectations have strengthened quite noticeably, and they are also strengthening over the medium and long term. Nevertheless, we do not expect core inflation to reach 2% immediately,” he added.
“We have no plans to raise bond yield targets. Nor do we plan to widen the range of deviations from target yield levels. The economy is in the middle of a recovery from the effects of the pandemic. Japan’s deteriorating terms of trade are also draining profits, adding to the pressure on the economy. Therefore, we must continue to pursue a loose monetary policy to ensure that corporate profits rise to moderate wage and price growth,” Kuroda summarized.
Japan Finance Minister warns markets as yen nears intervention danger zone
© Reuters. FILE PHOTO: Japanese Finance Minister Shunichi Suzuki speaks with the media after a meeting of G7 leaders on the sidelines of G20 finance ministers’ and Central Bank governors’ meeting at Gandhinagar, India, July 16, 2023. REUTERS/Amit Dave/file photo
By Tetsushi Kajimoto
TOKYO (Reuters) -Japan’s finance minister said on Tuesday that authorities won’t rule out any options in dealing with excessive currency volatility, underlining a warning that has kept traders on alert for intervention to prop up the weak yen.
Pressured by Japan’s ultra-easy monetary policy, the currency has slipped in recent days towards 150 per dollar, a level seen by financial markets as a red line that would spur Japanese authorities to intervene, like they did last year.
“Excessive volatility is undesirable,” the minister, Shunichi Suzuki, told reporters.
Later as the yen fell beyond 149 per dollar, its weakest since October 2022, he said “we are closely watching currency moves with a high sense of urgency.”
That verbal warning prompted a mini rally in the yen, highlighting how sensitive markets are to potential intervention.
The minister signalled that Japan is trying to win the consent of its key Group of Seven (G7) allies to take action if needed.
“We share the view with the U.S. and other authorities that excessive volatility is undesirable,” Suzuki said.
The G7 rich nations make it a rule that countries need to inform their counterparts before they intervene in currency markets. The bulk of Japan’s past intervention was conducted in the dollar/yen exchange rate to stem yen strength, rather than weakness, in order to protect all-important exports.
Analysts doubt Japan can win U.S. understanding to intervene by selling the dollar in favour of the yen because that could aggravate stubbornly high inflation in the U.S..
The latest currency warning from Suzuki comes after Prime Minister Fumio Kishida formally ordered his cabinet to compile a new economic package aimed at easing the pain of price hikes, including on food and energy.
Japan intervened last September to prop up the yen for first time in 24 years when the currency slipped to 145 per dollar. The currency hit 148.97 on Monday and after slipping beyond 149 earlier on Tuesday it last traded at 148.72.
The BOJ’s monetary easing has pressured the yen, which in turn has raised import prices.
($1 = 148.8500 yen)
Dollar hits 10-month high as US yields spike, yen recovers from dip
© Reuters. U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File photo
By Harry Robertson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – The dollar rose to a new 10-month peak on Tuesday as U.S. bond yields hit their highest level since October 2007, while the Japanese yen recovered from an early dip, with traders on alert for signs of government intervention.
Federal Reserve policymaker Neel Kashkari said on Monday that, given the strength of the U.S economy, interest rates should probably rise again and be held “higher for longer” until inflation falls back down to 2%.
His comments helped push up the yield on the 10-year U.S. Treasury – the benchmark U.S. yield that sets the tone for borrowing costs around the world – to 4.566% on Tuesday. Bond yields move inversely to prices.
Higher U.S. yields boosted the allure of the greenback, pushing the to 106.2, the highest since late November 2022. The index, which tracks the currency against six major peers, was last up very slightly at 105.96.
The euro was last up 0.1% against the dollar at $1.0596, having hit its lowest since March at $1.057 earlier in the session.
“The dollar is just a steamroller, it’s absolutely extraordinary,” said Joe Tuckey, head of FX analysis at broker Argentex.
“It’s just exceptionalism in the U.S., it’s very hard to argue with. We’re just seeing that consistently strong data there.”
The brief rally in the dollar did further damage to the Japanese yen, which at one point fell past the 149 per dollar mark for the first time since October 2022, hitting 149.19.
Finance Minister Shunichi Suzuki on Tuesday said the government is “watching currency moves with a high sense of urgency”, causing the yen to pare its losses versus the greenback, so that it last stood at 148.88 per dollar.
James Malcolm, head of FX strategy at UBS, said of Japanese officials: “In terms of all of the tell-tale signs (of intervention) they’ve done everything they possibly could do.”
He added: “No one wants to believe it’s going to happen until it actually happens, which is absurd because (Japan is) the most consistent and the most practised over the decades at doing this.”
Elsewhere, the British pound slid to its lowest level since mid-March at $1.2168 and was last down 0.19% at $1.219. It follows the BoE’s decision to hold rates at 5.25% last week and a spate of bad economic data.
Tuesday marks a year since the pound crashed to a record low of $1.0327 against the dollar after then-Prime Minister Liz Truss’s disastrous budget.
The Swiss franc also fell to its lowest since March at 0.915 francs to the dollar, having slid since the Swiss National Bank unexpectedly kept interest rates on hold last week.
Currency bid prices at 1043 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
$1.0596 $1.0592 +0.04% -1.11% +1.0603 +1.0570
148.8900 148.8200 +0.02% +0.00% +149.1800 +148.7450
157.75 157.71 +0.03% +0.00% +157.9200 +157.3900
0.9126 0.9120 +0.08% -1.29% +0.9150 +0.9119
1.2187 1.2213 -0.21% +0.78% +1.2215 +1.2168
1.3492 1.3455 +0.28% +0.00% +1.3500 +1.3449
0.6405 0.6423 -0.25% +0.00% +0.6430 +0.6388
Dollar/Dollar 0.5959 0.5968 -0.13% +0.00% +0.5973 +0.5936
Tokyo Forex market info from BOJ
Dollar retains strength after hawish Fed; Yuan struggles with property woes
Investing.com – The U.S. dollar edged higher, just below the recent six-month high, making a steady start to the new week as traders digested last week’s series of central bank interest rate decisions.
At 03:20 ET (07:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 105.262, having hit a six-month high on Friday.
Dollar retains strength after hawkish Fed meeting
The dollar received a boost last week after the indicated that rates would be higher for longer, surprising the market with the hawkish nature of its predictions.
This contrasted significantly with its counterparts in and , who both halted their rate-hiking cycles, while the maintained its extremely accommodative monetary policy.
This followed the previous week’s relatively dovish tone by the .
edged lower to 1.0650, just above the six-month low of 1.0615 seen on Friday, and was on track to lose roughly 1.8% for the month, its steepest monthly fall since May.
rose 0.1% to 1.2244, rebounding to a degree after sliding more than 1% last week, with the pound heading for a more than 3% fall in September, its worst monthly performance in a year.
traded largely unchanged at 148.38, not far removed from the pair’s 10-month high seen last week after the Bank of Japan’s dovish meeting.
“The result was a bit disappointing given that there wasn’t any clear sign of a shift in policy stance either from its statement or from Governor Ueda’s comments,” said analysts at ING, in a note.
The currency pair is within striking distance of 150, a level which many in the market see as prompting forex intervention from Japanese authorities.
Central bank speakers, inflation data due
There are a series of central bank officials due to speak this week, with ECB President starting the ball rolling later in the session, ahead of comments from Minneapolis Fed President .
Preliminary September consumer price data for the bloc is due at the end of this week, while there is also key U.S. inflation scheduled for Friday.
Ahead of this, the release is due later Monday, and will give an indication of the health of the eurozone’s most important economy.
Chinese yuan drops on property woes
rose 0.2% to 7.3092, with the Chinese yuan struggling due to renewed concerns over China’s debt-addled property market.
Real estate giant China Evergrande (HK:) Group warned that it was unable to issue new debt due to a government investigation into its subsidiary Hengda Real Estate Group.
This fueled concerns over a broader debt freeze in the market, which is already reeling from a severe cash crunch over the past three years.
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