Yen Strengthens as BOJ Adjusts Forward Guidance

Japanese yen gained against the USD after the bank of Japan (BOJ) delivered its
fourth interest rates decision of the year. As expected, the bank left interest
rates unchanged at the current level of minus 0.1%. The committee also
committed itself to stimulus into 2020 to address the ongoing slow growth and

interest rates, the committee committed itself to leaving rates unchanged at
least around spring of 2020. This was viewed positively by the market because
the bank had not specified when it would tweak interest rates in the past

the closely-watched quantitative easing, the committee said that it will
continue buying the Japanese Government Bonds (JGBs) so that the yield on the
ten-year note remains around zero percent. In addition, the bank announced that
it was relaxing the eligibility standards for credit provision to companies,
which was viewed as a measure to boost growth.

believe that the new measures will stir growth in an economy that is facing
multiple challenges. As an export-driven economy, the country has suffered with
the current situation of trade conflicts. In fact, data released this month
showed that the exports declined for the fourth consecutive month. This led to
an increase in the country’s deficit.

addition, consumer sentiment declined to the lowest level in three years. This
dashed hopes for any wage growth. Further, the country’s inflation rate has
continued to remain below the BOJ target of 2%. As I have explained before,
strong employment numbers in Japan don’t necessarily lead to higher inflation
as is common with other countries. This is because of the country’s aging
population, which is not concerned much about consumption. In fact, the bank
said that inflation will average between 1.1% and 1.5% in 2020. The statement

The Bank will continue with “Quantitative
and Qualitative Monetary Easing (QQE) with Yield Curve Control,” aiming to
achieve the price stability target of 2 percent, as long as it is necessary for
maintaining that target in a stable manner. It will continue expanding then
monetary base until the year-on-year rate of increase in the observed CPI (all
items less fresh food) exceeds 2 percent and stays above the target in a stable

response to the interest rates decision, the USD/JPY pair declined to a low of
111.85. This level was along the 21-day and 42-day moving averages. The MACD
has started moving downwards. There is a likelihood that the pair might resume
the upward trend because of the strength of the US economy.

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