JPY: Between BOJ dovishness and Trump’s trade war

After the US government came and went (for now), USD/JPY stabilized. Yet new stories affect the pair, which remains torn between opposing forces.

The Bank of Japan is the most dovish central bank in the developed world and this is not about to change. Despite the recent “mini taper tantrum”, the BOJ continues printing money at full speed. The January rate decision reiterated the policy of keeping the 10-year yield pinned to 0%, with unlimited bond-buying. Kuroda and his colleagues will not let go until that elusive 2% inflation target is achieved.

Governor Kuroda also added that the day to day bond-buying operations do not indicate future changes to monetary policy. They are worried about wages not rising enough and without pay rises, inflation will not rise. There are downside risks and they are “larger”. In any case, they do not intend to change their monetary policy anytime soon.

The policy of the BOJ contrasts the rate rises from the Federal Reserve, the BOC, and even the BOE. And in the euro-zone, money printing is still going on, but it has recently been halved.

The super loose monetary policy is keeping the pressure on the yen, thus pushing USD/JPY higher. We have seen how the pair topped 111 on the news from Tokyo.

However, the top story in markets is the decision by US President Trump to impose tariffs on solar panels and washing machines. The move is pointed mostly at Chinese panels and perhaps against Korean washing machines but could serve as the first shot in a trade war.

It is also important to note that the decision comes in a week when NAFTA talks enter another round. A breakup of that deal is also on the cards.

How are North America and China related to the yen? The Japanese currency continues serving as a safe-haven currency. In times of trouble, it receives flows. And if this is indeed the beginning of a trade war, there are reasons to be worried.

More: USD/JPY: Broad 110-114.50 Range; BoJ On Hold Next Week- Danske


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