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Japanese Yen Plunges As BOJ Maintains Ultraloose Monetary Policy

August 1, 2018 at 20:30 by Andrew Moran

Rolled 1,000-yen banknoteThe Japanese yen continued to plummet against the US dollar and a basket of other currencies. After the Bank of Japan (BOJ) maintained its ultraloose monetary policy, surprising international markets, the currency continued its sluggish performance over the last five trading sessions.

On Tuesday, the BOJ decided to only modify its yield curve control policy, refraining from diminishing its accommodative policies that have been in place since the financial crisis of a decade ago. BOJ Governor Haruhiko Kuroda noted that policymakers would likely keep easing monetary policy longer than initially anticipated, which has many analysts expecting the yen to face long-term pressure.

By the end of its policy meeting, the BOJ left interest rates unchanged at -0.1%. The bank confirmed that rates will remain low for an extended period of time.

In the meantime, it appears that the Japanese central bank will be the last major institution to tighten policy, stemming from a sluggish national economy and low levels of inflation. Right now, the BOJ’s inflation target rate is 2%, but policymakers do not anticipate meeting that figure until 2021.

As a result, traders have been selling off the yen over the last two days, amplifying the currency’s month-long slump against the greenback and the euro.

In economic news, the Japanese July Nikkei manufacturing price managers’ index (PMI) rose to 52.3, up from 51.6 in June. The nation’s preliminary industrial production fell 2.1%, a bigger decline than previous estimates of 0.3%. Japanese housing starts also tumbled 7.1%, which is also larger than the original forecast of 2.1%.

The Japanese labor market remains in trouble. The June unemployment rate rose to 2.4%, up from 2.2%, and the jobs-applicants ratio jumped to 1.62 in June, up from 1.6. in May.

Moving forward, the yen will attempt to find direction from the US dollar in the coming days, especially after the Federal Reserve left rates unchanged at the end of its two-day Federal Open Market Committee (FOMC) policy meeting. The US Dollar Index edged up 0.11% to 94.66, climbing nearly 3% year-to-date.

The USD/JPY currency pair slipped 0.21% to 111.63, from an opening of 111.86, on Wednesday at 19:01 GMT. The EUR/JPY currency pair plummeted 0.45% to 130.18, from an opening of 130.80.

If you have any questions, comments, or opinions regarding the Japanese Yen, feel free to post them using the commentary form below.

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