Fundamental Comment

Yen strengthens after BOJ pledge to hold rates until spring 2020

Yen strengthens after BoJ meeting

The Japanese yen strengthened against major currencies on Thursday after the Bank of Japan gave a clear forward guidance regarding holding low interest rates, thereby confirming the BOJ’s intention to keep its ultra-loose policies.

The USDJPY pair slipped to 111.82, compared to the session’s open at 112.91, noting that the pair has been moving in a bullish direction since the beginning of the year.

Against the euro, the yen took the pair lower for a third straight session to 124.77 and down to 144.30 against the British pound.

The BOJ announced for the first time today that the central bank would hold interest rates at least until the spring of 2020.

“Current very low rates will be maintained at least until the spring of 2020... But the timeframe could be much longer than that. We clarified that when we say ‘for an extended period,’ we are talking about quite a long timeframe,” BOJ Governor Haruhiko Kuroda said at his post meeting news conference.  

The central bank highlighted the elevating risks on the economy stemming from weaker global demand and Sino-U.S. trade tensions.

Meanwhile, major banks, more specifically the Federal Reserve and European Central Bank, have halted the process of rolling back stimulative policies.

BOJ cuts growth and inflation outlook

Japan had been “affected by the slowdown in overseas economies for the time being”, and that there are “high uncertainties regarding the outlook for economic activity and prices,” the BOJ warned.

Economic growth outlook in Japan was slightly slashed to 0.9 percent in the next fiscal year beginning in April 2020, down from 1.0 percent predicted by the BOJ in January.

Also, the inflation prospects were shed as the BOJ now forecast consumer inflation would hit 1.6 percent in the year ending March 2022, conceding that price growth will fall short of its target for at least three more years.

BOJ sparks haven demand in markets

The BOJ statement has added to worries and hence boosted demand on safe haven assets, led by the yen and gold.

Most Asian shares closed lower on Thursday, but Japan’s Nikkei 225 index managed to eke out a 0.48 percent gain to end at 22,307.58 points.

Gold rebounded for a second straight session to $1277.77 an ounce after hitting a low of $1266.29 on Tuesday, the lowest since late December 2018.

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