The Bank of Japan (B.O.J.) lowered their forecast for the country’s economic growth but left monetary policy unaltered for the third consecutive month...
The Bank of Japan (B.O.J.) lowered their forecast for the country’s economic growth but left monetary policy unaltered for the third consecutive month. The bank lowered economic expectations for the year (2012) to a contraction of 0.4% of gross domestic product (G.D.P.) rather than the previously projected contraction of 0.3%. The country’s economic growth has been largely unchanged due to strengthening of the yen as well as the effects of the international economic slowdown. The bank projects growth for 2013 will be a gain of 2% rather than the previously projected 2.2% increase. These reductions come at a time when concerns over the European debt situation and the consequential economic impact, including decreasing exports and heightening yen values, run high.
The bank expects the consumer price index (C.P.I.), not including volatile foods, to be around 0.5% for next year (2013). Additionally, inflation is expected to continue deflating through the following year (2014). The policy’s current interest rate lies between 0.0%-0.1% and the bank plans to continue easing of the monetary policy through then. The bank sees an annualized 1.0% gain in the C.P.I. as a measure of price stability.
Economists project that the B.O.J. will leave monetary policy unchanged as pressures in the financial market have lessened. Yet, further gains in the yen’s value could hurt economic recovery and cause the central bank to move to action. The bank has already purchased government and corporate debts including real estate trusts and exchange-traded funds to reduce risk premiums and interest rates. The current asset fund buying level sits at 20 trillion yen ($260 billion USD) while the credit it extends out sits at 35 trillion yen.
The USDJPY was unchanged after the rate decision as it was in line with expectations. Majority of traders are holding long positions on the USDJPY in anticipation of intervention from the Bank of Japan. If the government intervenes, we might see the USDJPY pushed above 78.50, similar to the intervention in October.
Eugene Ross, Analyst
Admiral Markets
At any use of the analytical material taken from a site of company Admiral Markets, and the secondary publication on any other resources, the rights to intellectual property for a dealing center «Admiral Markets», the reference to a company site is obligatory.
