Morning Brief – Yen currency smashed lower

The yen currency was smashed lower against a basket of currencies this morning as the central bank went against market consensus and did not change monetary and start to reduce its QE programme.

The USDJPY pair spiked towards the 132.00 area after Bank of Japan maintained its key short-term interest rate at -0.1% and that for 10-year bond yields around 0% during its January meeting by a unanimous vote.

The Japanese central bank also kept its 0.5% cap for bond buying, completely defying market speculation, and signalling that policymakers are not seeking a looser grip on bond yields after the bank unexpectedly tweaked its yield curve control range in December.

Meantime, in a quarterly outlook report, the board cut slightly its 2022 GDP growth forecast to 1.9% from 2.0%, citing slowdowns in overseas economies and high commodity prices.

For FY 2023, the bank also slashed its GDP outlook to 1.7% from 1.9%. Meantime, the CPI readings are more or less unchanged, standing around 3% in FY 2022 and 1.6% in the following year.

The BoJ reiterated it will take extra easing measures if needed while expecting short-and long-term policy interest rates to stay at their present or lower levels.

Also the BOJ Quarterly Report noted that “Japan’s economy likely to recover with easing of impact from coronavirus pandemic, supply constraints.”

The report also said that “Price growth expected to narrow towards the middle of next fiscal year” and central bank “Need to pay close attention to effects of financial, currency market movements on Japan’s economy and prices.”

On the global economy, they said “there’s a risk global economy could deviate downward due to capital outflow from emerging markets and tightening of global financial conditions.”

Elsewhere, the US dollar index is strengthening this morning, with the EURUSD pair trading towards the 1.0750 level and sterling around the 1.2280 area.