Bank of Japan (BoJ) Governor Kazuo Ueda said on Monday that some challenges are uniquely difficult for the Bank and BoJ will proceed cautiously as do other central banks with inflation-targeting frameworks.

Key quotes

We have made progress in moving away from zero and lifting inflation expectations, but we must now re-anchor them, this time at the 2% target.

BoJ will proceed cautiously, as do other central banks with inflation-targeting frameworks.

While many of the challenges we face are similar to those encountered by our counterparts, some are uniquely difficult for us.

The absence of significant interest rate movements poses a considerable obstacle in assessing the economy's response to changes in interest rates.

Market reaction

At the time of writing, USD/JPY is trading 0.09% lower on the day to trade at 156.82.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

 

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