BoJ members question policy

The Japanese yen is flat in the Monday session. Currently, USD/JPY is trading at 103.61, down 0.04% on the day.

BOJ to conduct policy review

The BoJ has indicated that it will review its stimulus programme, but it is unclear if this will translate into mere cosmetic changes or more significant moves. There are aspects of BoJ policy that clearly are not working, such as the achieving of 2% inflation. The BoJ has stubbornly adhered to this target, even though it has been glaringly apparent that inflation has hovered well below this goal for years. Last week’s minutes showed that some of the nine members want to see more than just tweaks to the current policy, and this was reiterated in the summary of opinions, which was released on Monday. Two members called for the bank to conduct a thorough assessment as to its strategy for reaching its 2% target.

The Covid-19 pandemic has caused a severe economic downturn which has pushed inflation even lower, raising fears of deflation. Recent inflation releases reflect these concerns. The BoJ Core CPI, the bank’s preferred gauge of inflation, has failed to post a gain since June, and Tokyo Core CPI slipped to -0.9% in December, its sharpest decline in more than 10 years. Despite these calls for significant action, there is little reason to expect that the cautious BoJ will change course; it’s more likely that the central bank will be content to make some tweaks to its policy, such as to yield curve control. With Covid-19 showing a resurgence in Japan and elsewhere, economic conditions remain grim, so it’s difficult to envision what the BoJ can do to raise inflation in such an environment.

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USD/JPY Technical Analysis

• There is resistance at 103.84. Close by, there is resistance at 104.19
• 103.20 is providing support. The next support line is at 102.91
• The pair is trading close to the 10-day MA

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