Bank of Japan today held rates unchanged at 0.1% level, leading to another wave of Japanese yen depreciation, as USDJPY hit 156 level at 34-year highs. The bank boosted core CPI median forecast for fiscal 2024 to 2.8% vs 2.4% in January, but Core CPI is expected to reach 1.9% by 2026. Here are some highlights from BoJ quarterly report which showed moderate recovery in Japan's economy, despite some weakness still observed.
- BoJ anticipates continuing accomodative monetary conditions 'for the time being' despite resilient private consumption and rising prices
- Bank will follow March decision and will buy JGBS and corporate bonds (but removed reference to monthly purchases of JGBS worth $6 trillion yen)
- Median forecast for real GDP in fiscal 2024: 0.8% vs (1.2% in January). Median forecast for fiscal 2026 real GDP: 1%.
- Inflation expected to converge with target in latter half of forecast period but risks for it skewed upside for fiscal 2024 'but generally balanced thereafter'
- At the same time heightening of medium to long-term inflation expectations moderately.
- Middle East situation could have downward impact to economy overseas. Bank of Japan could adjust degree of monetary easing if trend inflation increases
- BoJ could adjust degree of monetary easing if trend inflation increases.
- Report showed 'vigilance' needed for currency, market movements and their impact on economy and prices
- Japan economy remains uncertain, prices remain high. Moderate rise in inflation expectations
- Potential risks are from fx rates, global commodity prices and higher import prices
- Bank expects continued strengthening of positive cycle for rising wages and inflation
- See increasing number of firm passing on wage increases to sales prices. Consumption is expected to gradually increase
Overall, markets see BoJ report as dovish because the bank doesn't seem to be feared by resilient consumers and higher inflation expectations. There were no signal of any radically changes and what's more, bank lowered GDP for fiscal 2024 which stay against higher inflation perspectives.
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USDJPY pair defended key support levels of SMA200 twice in 2023. Current move signal extreme overbought level (RSI) which may lead to short-term correction, but as long as BoJ stance is dovish, we have very strong long term driving yen depreciation to US dollar, as Federal Reserve hold interest rates near record-high since almost three decades.
Source: xStation5
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