Yen Declines As BoJ Holds Monetary Policy Steady; Cuts Growth, Inflation Forecasts

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The Japanese yen depreciated against its major counterparts in the Asian session on Thursday, as the the Bank of Japan kept its monetary policy unchanged and downgraded the growth and inflation forecasts for the current fiscal year reflecting the impact of the COVID-19, decline in crude oil prices and a government travel campaign.

The Policy Board of the BoJ headed by Haruhiko Kuroda voted 8-1 to retain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The bank will continue to purchase necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

The bank will actively buy exchange-traded funds and Japan real estate investment trusts so that their outstanding amounts will increase at annual paces with the upper limit of about JPY 12 trillion and around JPY 180 billion, respectively.

As for CP and corporate bonds, the bank will maintain their outstanding amounts at about JPY 2 trillion and JPY 3 trillion, respectively.

The bank said that the economy is likely to follow an improving trend with economic activity resuming and the impact of the coronavirus waning gradually. But the pace is forecast to be moderate.

The economy is forecast to shrink 5.5 percent in the fiscal 2020 versus previous outlook of -4.7 percent.

Consumer prices are projected to fall 0.6 percent in the fiscal 2020 compared to the previous outlook of -0.5 percent.

Data from the Ministry of Economy, Trade and Industry showed that Japan retail sales fell 8.7 percent on year in September – coming in at 12.101 trillion yen.

That missed forecasts for a decline of 7.7 percent following the 1.9 percent drop in August.

The yen advanced on Wednesday as surging coronavirus cases in Europe and the U.S. and receding hopes for a stimulus package in the U.S. dented the risk sentiment. It gained 0.6 percent against the pound, 0.09 percent against the greenback, 0.5 percent against the euro and 0.3 percent against the franc for the day.

The Japanese yen fell by 0.3 percent to 114.90 against the franc, from Wednesday’s closing quote of 114.57. The next likely support for the currency is seen around the 116.5 level.

The yen lost 0.2 percent against the greenback, dropping to 104.51. The pair was worth 104.32 when it closed deals on Wednesday. The yen may locate support around the 108.00 mark, should it weakens further.

The yen was down by 0.3 percent against the euro, at 122.89. The pair had finished Wednesday’s deals at 122.53. Next near term support for the yen is likely seen around the 125.00 level.

The Japanese currency registered a 0.3 percent drop against the pound, with the pair trading at 135.89. The GBP/JPY pair had ended yesterday’s trading session at 135.44. Extension of downward trading may see the yen challenging support around the 138.00 region.

The yen slipped to 78.63 against the loonie, down by 0.4 percent from yesterday’s closing quote of 78.30. Further decline in the yen may test support near the 81.00 level.

The yen reached as low as 73.84 against the aussie, representing a fall of 0.5 percent from Wednesday’s trading close of 73.45. Immediate support for the yen is likely seen near the 75.00 level.

Data from the Australian Bureau of Statistics showed that Australia import prices dropped 3.5 percent on quarter in the third quarter of 2020 – after slipping 1.9 percent in the previous three months.

On a yearly basis, import prices dropped 5.7 percent.

The Japanese yen remained weaker against the kiwi, at 69.42. The pair was worth 69.25 at Wednesday’s close. The yen is likely to challenge support around the 72.00 mark.

Looking ahead, U.K. Nationwide house prices for October and mortgage approvals for September, as well as German jobless rate and Eurozone economic sentiment index for October will be published in the European session.

U.S. GDP data for the third quarter, weekly jobless claims for the week ended October 24 and pending home sales for September are due in the New York session.

The European Central Bank will announce interest rate decision at 8:45 am ET. The ECB is expected to hold its main refi rate at a record low zero percent and the deposit rate at -0.50 percent.

German flash consumer inflation for October will be featured at 9:00 am ET.

The material has been provided by InstaForex Company – www.instaforex.com

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