Yen Continued Drop Ahead of Monetary Policy Decision

Thursday, the yen continued its drop following interventions from Japanese authorities, just a few days ahead of the monetary policy decision to be made by the Bank of Japan (BoJ). After Masaaki Shirakawa, the governor of The BoJ stated that the bank is dedicated to monetary easing, the Japanese currency fell to 81.62, by 0.5% against the dollar. Against sterling and the euro, the currency fell 0.7% and 0.6% to Y131.05 and Y107.23 respectively.

BoJ to Ensure Powerful Monetary Easing

According to Shirakawa, the BoJ will take several measures to ensure powerful monetary easing. It will include buying financial assets till the present aim of year-on-year price inflation (consumer) is achievable. The BoJ will also take steps to keep the interest rate in the policy close to zero.

Other currencies against which the yen dropped were the New Zealand, Australian and Canadian dollars. Analysts stated that the weakness shown by yen is most likely due to a presumption that the BoJ will facilitate renewed easing during the next meeting for discussing monetary policy. This has been set in motion by some of the very dovish statements released by Japanese authorities recently.

In February, the market was stunned when the BoJ stated that it will adopt aggressive measures for easing. It did not stop there, as it released an inflation target of 1%. In the next 5 weeks, the US currency dropped 7% against the dollar.

Drop in Yen Value a Sign of it Catching Up with Improvements

While one side of the industry believes this was caused just by a change in the policy expectations of the BoJ, there is another side that feels that it is because of other factors. According to this side of the industry, the dip in yen value was just a sign of it catching up with improvements in the economic climate and global financial market.

According to Lee Hardman from bank of Tokyo-Mitsubishi, the likelihood that more easing will affect the yen again, is quite low. This is because the bond yields from the Japanese government – which will be targeted by the easing – are currently very low. Also, yield differentials depend and hence are affected more by the monetary policy from other countries.