Kuroda, BoJ Recommit To Ultra-Loose Policy Ahead Of Japanese Elections

Fundamental Forecast for JPY: Neutral

It was a mixed week for the Japanese Yen: The Currency put in a gain against the U.S. Dollar but fell against the British Pound and Australian and New Zealand Dollars. As global markets were fixated on the Federal Reserve meeting minutes and U.S. data for much of this week, little by way of excitement came out on the Japanese economic front. The big item that did appear to catch some interest took place in the early portion of the week, when BoJ Governor Haruhiko Kuroda ‘recommitted’ to ultra-loose monetary policy at a meeting among BoJ branch managers. Given that the Bank of Japan has pretty much been pedal to the floor on the stimulus front for the better part of five years now, this wasn’t necessarily an earth-shattering announcement. It did, however, help to bring sellers back into the Yen, which aided in setting swing-lows on the daily charts of GBP/JPY, NZD/JPY and AUD/JPY.

On the data front, we did get a point of interest with the Wednesday release of the Domestic Corporate Goods Price Index. This is similar to PPI in that it tracks prices of goods purchased by Japanese corporations, and this, of course, can lead-in to consumer-level inflation as companies pass on those higher costs to their customers. The data came-in right on the expected read of 3% year-over-year and .2% month-over-month, indicating that we are still seeing some build that could lead-in to stronger inflation. But this continues to happen very slowly, and there’s little hope of Japanese inflation crossing-above 2% anytime soon, thereby keeping some form of pressure on the currency as tighter policy options become more likely in major economies out of Europe, the U.K. and the United States.

Collectively – those factors can provide for a fairly sanguine backdrop for continued weakness in the Japanese Yen. But – there are risks on the other side of that trade, and these are very subjective in nature and from outside of the realm of economics; at least directly. Those risks are the scenario that continues to brew around North Korea, and Japanese General Elections that are taking place in the week after next.