Bank of Japan Monetary Policy

Japan’s inflation hit 0.6%, left behind compared to other countries. Recovery delayed effect by omicron, while cases and fatalities are still low. However, inflation in Japan is limited on fuel and cooking essentials. The government’s concern is Inflation risk could rise faster than expected pace.

As written this day BOJ monetary policy statement and outlook, we can get several point as key takeaway:

  1. The actual Inflation is better than forecast
  2. 2021 fiscal year GDP growth was worse than forecast
  3. The Bank will purchase CP and corporate bonds with an upper limit on the amount outstanding of about 20 trillion yen in total until the end of March 2022.

From a forecast point of view, we could temporarily conclude that BOJ raises the inflation forecast. However, since Japan’s economic growth in 2021 was worse than the October 2021 forecast. From our assessment, the sentiment from each data point could be considered to neutralize each other. On the other hand, from the monetary policy perspective, there are no changes in monetary policy from Dec 2021 to Jan 2022 at least until the next BOJ meeting. As a result, our bias in today’s monetary policy is neutral.

Lets move to the other perspective, Covid-19 spread and activity curb could dent the economic recovery. As we know, the Japanese Prime Minister planned to strengthen COVID-19 curbs on 13 regions including Tokyo from Jan. 21 to Feb. 13. This act could have an impact on economic activity, especially on consumption. We expect temporary weakening of JPY onward. Considering facts above, traders could take advantage of this moment to trade against the JPY pair until the end of March.

About Reza Aswin

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