What is happening to the Japanese Yen may significantly aggravate the situation in the economy of the Land of the Rising Sun.
The Japanese Yen continues its rally. The USD/JPY pair is trading downwards close to 108.40. This is the number of 2014, and it’s very unpleasant for the economy of the country, whose monetary policy is “ultrasoft”.
This morning, Mr. Kuroda, the Governor of the Bank of Japan, said that the regulator would implement more measures for softening monetary conditions if the economic system required it. According to his words, at the moment the economy continues to recover gradually, although it’s better to use “very slowly” instead of “gradually”. Slowdown in emerging markets doesn’t allow Japan to recover its economy at full capacity.
According to the BoJ’s estimates, the core inflation will remain close to zero. The headline inflation will continue moving towards the target of 2%, but not very fast.
We discussed this topic again and again: it’s not enough just to reach the target of the inflation, although it would be great for Japan with its long deflation history. The most difficult part is ahead, when the target will be reached. In this case, the country will have to put the most efforts to hold this number. Possibly, it will require some additional financial and fiscal leverages.
The demand for assets of “safe haven” provides additional support to the Japanese Yen; capital markets are not sure about short-term prospects at all and trying to minimize risks.
RoboForex Analytical Department
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