Tokyo city and Mt Fuji. Image source: Panus Assawirojrueng © 123RF.com
At its monetary policy meeting earlier today, the Policy Board of the Bank of Japan decided to maintain negative interest rates amidst tight economic conditions and protracted recovery. Thus, the Policy Rate remains unchanged at -0.10 per cent.
The Board alluded to very few positive developments since its previous meeting, chiefly a pick-up in global economic activity. Meanwhile, downbeat prospects for recovery in Japan have compelled the Board to maintain an exceptionally accommodative monetary policy stance.
"The Bank will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent. […] The Bank will actively purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) for the time being so that their amounts outstanding will increase at annual paces with the upper limit of about 12 trillion yen and about 180 billion yen, respectively."
The BOJ cited muted inflationary pressures due to low oil prices as one of the primary reasons for the current weak price stability, drawing parallels with FED's comments from yesterday.
Dampened prospects for robust recovery continue to stave off a much-needed pick-up in business investment in Japan, which continues to represent one of the most substantial challenges for the BOJ.
Japan Business Confidence. Image source: TradingEconomics.com
As can be seen on the chart above, business confidence has been falling steadily since July of 2017. The sudden advent of the coronavirus crisis this year exacerbated pre-existing woes for Japanese businesses stemming from the trade war between China and the US.
"Financial conditions have been accommodative on the whole but those for corporate financing have remained less so, as seen in weakness in firms' financial positions. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is at around 0 percent, mainly affected by the past decline in crude oil prices. Inflation expectations have weakened somewhat."
This persisting problem has prompted BOJ members to preserve their accommodative monetary policy stance, which has strengthened the yen.
As can be seen on the daily chart below, the USDJPY is currently testing the major support level at 104.650, which has been prevalent since the aftermath of the initial coronavirus crash.
The Ichimoku Cloud indicator signals that the underlying market sentiment remains ostensibly bearish.
Nevertheless, the recent strengthening of the dollar could prompt a temporary rebound from this historic support. Such a course of action could develop a new pullback towards the major resistance level at 106.140.
USDJPY 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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