The yen has been weakening all day, and moments ago the USDJPY hit 110.00, the highest level since the start of the year – rising alongside 10Y TSY yields and S&P futures – after Japan’s exports fall and Bank of Japan cuts inflation outlook again.
On Wednesday morning, in its latest policy decision, the Bank of Japan kept its monetary policy unchanged as expected, but cut its inflation forecast, and now expects CPI forecast for the fiscal year starting in April to be only 0.9% down from 1.4%, citing lower oil prices, but really just the latest admission that Abenomics is failing to gain traction. The BOJ also trimmed its estimate for fiscal 2020 to 1.4% from 1.5%.
“The yen came under pressure as the perception that the current low interest-rate condition in Japan will continue longer after the BOJ cut its inflation forecast,” said Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities.
“BOJ’s decision to lower its inflation forecast has added to the perception that it will continue its current ultra-loose monetary policy for longer, without suggesting it will ease further”, said Tadashi Matsukawa, head of fixed-income investment at Pinebridge Investments Japan.
There was more bad news for Kuroda and Abe overnight, when Japan’s exports tumbled 3.8% Y/Y in December, twice as bad as the expected -1.9%, and the lowest since October 2016, in yet another confirmation that i) global trade is slowing rapidly and ii) Japan will need to find a way to lower the Yen even more if it hopes to boost the country’s exports.
Still, as Bloomberg notes, the dollar continues to face stiff resistance near 110 yen as two key psychological risk factors – U.S.-China trade tensions and U.S. government funding legislation – remain unresolved. That said, as Japanese interest rates are expected to stay low, local investors may decided to send their money abroad, which could provide support to USD/JPY.
via ZeroHedge News http://bit.ly/2RM39ao Tyler Durden