Bank Of Japan’s Recent Announcement Makes It More AggressiveJanuary 9, 2023
In a recent announcement, the Bank of Japan (BOJ) has decided to announce the upper limit of the country’s interest rate up to 0.5%.
Moreover, this interesting decision also includes the free movement of yield between -0.5% and +0.5%. As the New Year is just hours away, the market was already showing positive signs. However, this announcement has further sparked the upward movement.
Just within a few hours, the JGB surged by 4.3%. This accounts for the biggest rise since 2015. The technical look also showed an increase in the OIS curve.
Experts Are Surprised by This Announcement
Not a single market expert was expecting any significant decision from this meeting. However, the top-tier management of the bank. But the decision was kept confidential until its announcement.
The plan was to announce the change in policy at a time when nobody expected it.
As the rest of the country was busy with New Year’s preparations, the Bank of Japan announced the change in its policy.
It is the biggest surprise the bank has given to the currency markets since 2016 when the policy rate moved into negative.
The Strong Changes Being Made By the Financial Institutions in Japan
The momentum for change is only going upward in the country. The country’s financial regulators are trying to tackle the bond and currency relates risks at the same time.
Hence it was important for the BOJ to review its ultra-relaxed policy on interest rates. That’s why a specific range has been locked.
Furthermore, the PM of Japan has hinted that government will show some flexibility in terms of inflation at the start of the New Year.
It seems that the top-level management is looking at the long-term stability of the country’s financial outlook.
A Look at USD/JPY Pair
Currently, the pair is low by -2.6% for the past 24 hours. This is the worst the pair has performed since November 2022.
But the look at other yen pairs also shows a similar outlook. It is important that the strength of the yen depends on the currency against which the yen is being traded.
Compared to the European and U.S. money markets, the Asian money market is more volatile, inflammatory, and sensitive.
However, USD/JPY is heading toward the 130 mark in the European and U.S. markets or may reach beyond.
Experts Are Predicting Further Low in For Japanese Yen
As talk of 2022, the Japanese Yen was among the worst-performing currencies of 2022. The majority of the experts believe that 2023 will be no different.
The fall could continue for 2023 as well, although the Bank of Japan has enhanced the upper limit of the policy interest rate. But overall policy interest rate remains low.
Commenting on that situation, the Canadian Imperial Bank of Commerce added that as soon as the institutes in Japan keep backing the economy, the currency will further devalue.
Moreover, the experts at ING said that for 2023, inflation would be fine for Japan. But at some point, the country has to raise its interest rate to prevent further devaluation.
Talk HSBC, the famous bank, also sees JPY declining further as the federal government is not interested in increasing the interest rates soon.
The fact is that the feds are, on purpose, keeping the JPY weaker. As Japan is an export-led economy, a weaker Yen will make Japanese products cheaper for international buyers.
Hence the country’s exports rise. Those countries who purchase goods from Japan also get benefits.
As things stand currently, it is almost impossible for the Bank of Japan (BOJ) to bring any change to its interest rate because it will strengthen the price of JPY, this is a trouble for the country’s export policy.
Hence those investors who are looking to invest in the currency market should avoid JPY at any cost as it is not a recommended currency to invest in.