The Bank of Japan announced the preparedness to take necessary monetary easing stimulus with no hesitation to meet its inflation target as soon as possible during the weekend at the economic symposium held in Kansas.
Governor Haruko Kuroda indicated that there’s an ample space available for additional easing ahead of the monetary policy meeting of the bank this September. The governor clarified that the bank would not adjust its 2 percent inflation target anymore, despite the suggestion of San Francisco Fed President John Williams to reconsider a higher inflation.
Last month, the BOJ expressed the plan to continue the QQE with a Negative Interest Rate to achieve the price stability on its enhancement of monetary easing. It was written “It (the BOJ) will examine risks to economic activity and prices, and take additional easing measures in terms of three dimensions -- quantity, quality, and the interest rate -- if it is judged necessary for achieving the price stability target.”
Aside from the easing policy measures, the Bank had also decided to purchase exchange-traded funds to increase its outstanding amount at an annual pace of 6 trillion yen and to buy Japanese government bonds to increase its outstanding amount at an annual pace of approximately 80 trillion yen.
As Mr. Kuroda professes the intention to decisively and considers the best use of the policy scheme in order to attain price stability, the stocks in Japan extended gains from the weekend until the earlier session on Monday.
Japan’s Nikkei hit its biggest one-day gain in three weeks as it jumped by 2.3 percent. The Nikkei Volatility declined 1.05 percent as the rising stocks outnumbered the falling ones. Climbing stocks in Japan were headed by the Shipbuilding, glass and Automobile sectors.
Meanwhile, the yen edged lower as the U.S. dollar rose to a three week high as the rate-hike view was intensified by the Fed officials during the economic symposium. USD/JPY changed 0.54 percent higher to 102.35 while EUR/USD advanced 0.57 percent to 114.61 at the market close.
This has been what the Japanese companies have been waiting for, the appreciation of the yen. A lot of corporations have suffered due to the long term strength of the yen. However, this might confuse the investors, who have put their bets on the currency in hopes that it will remain bullish in the long term.
Fed Chairwoman Janet Yellen strengthened the outlook for a rate hike as she revealed that the labor market and the economy showed improvement in the last months. Most of the market players expect for a change in the cash rate either next month or in December. In the recent CME’s FedWatch tool, it showed that a December rate hike stands at 60 percent probability.
Similarly, the Bank of Japan and the Federal Reserve are having their respective policy meeting this September and the market participant have been extra watchful in their monetary policy decisions. For the BOJ, the market expects for a stimulus to stabilize the soaring yen for a long term; and for the Fed, the rate hike will definitely make a difference not only with the dollar but to the commodities as well.
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