The Bank of Japan Maintained Easing Policy, Made Rare FX Reference


BoJ Maintains Stimulatory Stance

The Bank of Japan (BoJ) did not make any changes to its massive monetary easing policy and kept rates at -0.1, while maintaining its forward guidance for the short and long-term rates to "remain at their present or lower level". [1]

The central bank often steps in to the bond market in order to contain unwanted rises in the yields, having done so, multiple times this week [2]. Today it reiterated the pledge to buy "a necessary amount" of Japanese government bonds (JGBs), so that 10-year JGB yields will remain near 0%, offering to purchase them at 0.25% on "every business day".

Of course, none of this comes as a surprise, despite the recent surge in inflation, since we have recently seen officials reaffirming their determination to stick with the massive stimulus. Governor Kuroda for instance had noted in a speech earlier this month, that policy makers "will take a strong stance on continuing with monetary easing" [3].

Rare FX Reference

This commitment to monetary stimulus, with sub-zero internet rates and constant interventions in the bond market, have created an eye-watering plunge to the Japanese Yen, which loses more than 15% year-to-date against the USDollar.

Trade the News: View our Economic Calendar

Although a weaker Yen is often seen as a boon to the economy, since Japan is an exporting country, the recent surge in energy and commodity prices works against that, hurting consumers and businesses.

This led the Bank of Japan to make an unaccustomed FX reference, saying that "it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices".

It remains to be seen whether this is a first small step towards policy normalization, but although this statement carries quite some weight given its rarity, it was probably rather soft.

Economic Growth & Inflation

The Japanese economy shrunk by 0.5% in the first quarter of the year (annualized), although this was better than the -1% first preliminary reading.

The BoJ sounded upbeat today, saying that the economy has "picked up as a trend" and is likely to recover, but warned of "extremely high" uncertainty and "downward pressure stemming from the rise in commodity prices due to factors such as the situation surrounding Ukraine".

The World Bank slashed its global growth forecast this month and expects Japan GDP growth to stay at 1.7% this year before slowing down to +1.3% in 2023 and 0.6% in 2024 .

The uber-easy monetary policy from Japan's central seems well justified, if we take into consideration the aforementioned GDP contraction and the exporting status of the country.

Given surging commodity prices however, the Yen's demise puts upward pressure on inflation. Last month's data revealed that the Consumer Price Index (less fresh food) jumped past the bank's 2% target in April, to the highest level since 2015, with the latest update due next week.

Officials have so far dismissed this rise in prices, which is reasonable, since Japan has traditionally been plagued by the opposite problem: deflation. Today the bank noted that CPI is likely to hover around 2% "for the time being", but it is expected to "decelerate thereafter".

BoJ Isolation

Today's announcement by the Bank of Japan reaffirmed the stark policy divergence compared to its major counterparts and isolates it further, since the rest of the world tightens, to combat surging Inflation.

Earlier this week, the US Fed delivered its biggest rate hike in nearly 30 years, reacting to the recent CPI jump, while the Bank of England raised rates for the fifth time in a row, despite fears of impending recession.

Even the European Central Bank announced last week a plan to deliver multiple interest rate increases, starting with 25 basis points in July.

USD/JPY Reaction

The pair had reached its highest levels since 1998 at the beginning of the week (135.61), but then corrected to mid-131.00, as we had expected from our last analysis. Today it returns to positive territory, as the BoJ reasserted its uber-dovish stance and the rare FX reference did not weigh on USD/JPY.

The policy differential remains unfavorable for the pair and from a technical prospective, the shallow correction, gives the greenback the chance to resume its advance.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.



Retrieved 17 Jun 2022


Retrieved 17 Jun 2022


Retrieved 17 Jun 2022

${} / ${getInstrumentData.ticker} /

Exchange: ${}

${} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.