Yen Plummets Over BoJ Stimulus

The Japanese yen remained in the negative territory as the Bank of Japan signals possibilities of implementing necessary measures that include cutting the interest rate further. As the focus of the investors was put on the upcoming Fed meeting, a basket of currencies lost against the greenback.

Ahead of the monetary policy meeting of the BoJ next week, a report came out which revealed the plan to take the interest rates lower. The central bank of Japan would want to use the policy rate as the main stimulus to address the concerns on monetary. However, the BoJ is taking for granted the impact of negative rates, especially now that a lot of central banks keep their negative rates.

Kyosuke Suzuki, director of forex at Societe Generale (PA:SOGN) in Tokyo revealed that “The media report is about the BoJ considering a deeper cut in negative rates, but in a seemingly more broader time frame. As such, expectations that the BoJ would ease next week have not risen excessively. The moves we are seeing today are irregular, with dollar/yen gaining despite weaker stocks. It is safe to say short-term flows are driving movements for now.”

A lower interest rate will likely cause a currency depreciation. In case the bank pursues cutting interest rates, the yen would have a hard time to hit the green candle. Adding to this, the upcoming Fed meeting sends a perception that it may increase its cash rates. If this happens, the dollar will appreciate and a basket of currencies would be taken in the negative territory – this will include the yen of course.

In the first half of the year, the strength of the yen has caused a lot of problems in the corporate firms, especially in the automobile industry. Further to this, the impact of Brexit also crushed the profit of the Japanese companies. As it turned out, these manufacturing companies managed to resort to all the probable resources and respond to the appreciation of the currency pretty well.

Meanwhile, BoJ Governor Haruhiko Kuroda makes sure that the negative impact of negative rates will be given adequate attention in the upcoming meeting. Mr. Kuroda also aims to meet the inflation target on the bank and to include a massive asset buying program.

In connection with this, this is what Masafumi Yamamoto, chief bond strategist at Mizuho Securities has to say “”If the BoJ pushes rates to minus 0.3 per cent next week, that will probably leave it with just one more chance to cut rates and may reinforce views there won’t be much room left to slash. It’s also uncertain whether the BoJ can dispel market concerns that its bond buying is reaching its limits.”

Separately, the Japanese stocks changed hands lower with Nikkei 225 declining 0.69 percent and the Nikkei Volatility advancing 2.40 percent in the morning session. Most of the stocks in the petroleum, chemical and retail sectors dropped.

At the time of writing, here’s the conversion of the currencies. USD/JPY changed to 103.10, adding 0.50 percent; EUR/JPY to 115.666; CAD/JPY to 78.277 ; GBP/JPY to 135.96.

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