JPY Outlook

From the FXWW Chatroom: JPY: Are these really strong verbal references to an expansion of monetary policy in the
near future? At least the BoJ is saying that it will examine risks to economic activity and
prices, and take additional easing measures in terms of three dimensions – quantity, quality
and interest rate – if it is judged necessary for achieving the price stability target. So that
means it is willing to do more. We got that bit. And it would not have been able to and should
not have said less than that. The BoJ has not given any reference to the timing, to the
tranches that are affected by different interest rates being watered down or to helicopter
money. But the BoJ admits that exports and production have been developing in a disappointing
manner recently. And it even admits that inflation expectations have fallen recently.
But the BoJ continues to delude itself when it points out that the underlying trend in inflation
was rising steadily. With a large share of goodwill we can grant that at the end of last year a
very small upwards movement became discernible. But a trend? Most definitely not. The
market is already punishing the BoJ for being reluctant to act: USD-JPY and EUR-JPY are
easing. Rightly so, as the BoJ does not have the guts to grab the bull by the horns and to
step up its measures right away so as to show the world that it really is totally determined to
use all means in its fight for inflation. For the market that means that its inflation target has
become even further removed to cloud cuckoo land, and that the economy and inflation –
and in the end the BoJ – will come under even stronger pressure. The Japanese central
bankers have wasted precious time. And the market is unlikely to show any mercy. [Commerzbank]

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