Saturday, September 24

Yen declines significantly

Yen- the Japanese currency has declined significantly and is at 24 year lows at present. Bank of Japan has conducted a foreign exchange check reportedly. The HSBC stated that BOJ will maintain yield curve control policy instead. Under BOJ Governor Kuroda, chances of shifting away from the present monetary stance is low. Ahead of Bank of Japan’s decision on rates later this week, CNBC opines whether the central Bank will shift from ultra-loose monetary policy with Federal Reserves maintaining hawkish stance signalling rate hikes in near future. The Japanese currency has declined by about 25% year-to-date. The Central Bank of Japan conducted Foreign exchange check as a precursor to physical intervention to defend Yen, as reported by Japanese Newspaper Nikkei. Analysts are also asserting that the rapid decline in Yen over the years is attributed solely to the yield curve control policy that was adopted in the year 2016. The said policy caps 10 years Government Japanese bonds yielding 0% and offers to buy unlimited JGBs to defend 0.25% cap around the target. The policy aims to bring inflation in Japan to 2% target. On tuesday, Japan reported a sharp increase in inflation by upto 2.8% from a year ago in August. It is the fastest growth in inflation since last eight years and the fifth consecutive month when it exceeded the BOJ target. CNBC says that defending this policy will be the Central Bank’s priority instead of a currency intervention, a decision in this regard to be taken by the Ministry of Finance and execution will be carried out by Bank of Japan. BOJ will conduct Bond purchases to maintain the yield curve control policy. Such monetary operations could be contradictory to any potential foreign exchange action. The Dollar-Yen sales could tighten the Japanese currency’s liquidity. Forex interventions may not have the desired impact.

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