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September 28, 2019
Although he stated that he had no plans to increase stimulus, Haruhiko Kuroda explained several factors that would influence the BoJ's policy going forward. A number of leading central banks are expected to loosen their monetary policies, along with the increasingly widespread Federal Reserve interest rate cuts.
One of them is the Bank of Japan (BoJ). However, BoJ Governor Haruhiko Kuroda seems to still feel comfortable maintaining the current monetary policy. At present, the BoJ keeps interest rates at -0.1 percent and the yield target of 10-year Japanese government bonds around 0 percent. The BoJ also implements an asset purchase program at a rate of around 80 Trillion Yen per year.
In a speech in Osaka, Governor Haruhiko Kuroda said the BoJ had no plans to expand the monetary stimulus at a policy meeting next month. He hinted that further policies would depend on market changes and the resilience of the Japanese economy in dealing with economic risks from abroad.
Kuroda said that the BoJ would continue to look for ways to make the current Yield Curve Control (YCC) policy more sustainable. The problem is, super-low interest rates have the potential to further depress profit margins in financial institutions and instead make them even more reluctant to channel loans.
Apart from the risk of prolonged low-interest rates, Haruhiko Kuroda stressed the BoJ is still ready to add stimulus if the economy is proven to have lost growth momentum. To determine the direction of policy going forward, the BoJ will look at whether demand exceeds supply, how much interest companies have to raise employee salaries and the prices of their products.
They will also see the development of inflation expectations as well. "Along with the increased risks associated with the foreign economy, we must be increasingly aware of the possible impact of the international economic slowdown on Japan's economy and inflation," Kuroda said.
Overall, Kuroda only reaffirmed the policy points expressed in the BoJ's official statement after this month's meeting. His speech was almost completely ignored by market participants. From the opening of the Asian session to the beginning of today's European session, USD / JPY moved in a narrow range between 107.47-107.68.
Japan's core inflation trend has continued to weaken in recent months. This also opens up opportunities for the BoJ to release stimulus in the near future. The Japan Bureau of Statistics released the core Consumer Price Index (inflation) data which fell to the weakest rate since mid-2017.
The report that did not include the fresh food category was at the level of 0.5 percent on an annual basis (YoY), weaker than the previous month's inflation of 0.6 percent. Japan's core inflation release this morning is in line with economists' forecasts in a Reuters poll.
Meanwhile, the more specific core inflation report by not including the fresh food and energy categories recorded a rise of 0.6 percent in August, unchanged from the previous period. If measured as a whole, Japanese consumer inflation in August was only 0.3 percent, again slowing down after only reaching 0.5 percent last month.
However, the facts that have taken place in the last few months show that the inflation trend continues to slow down, depressed by the sluggish global economy which is pushing back the Japanese export sector.
Market participants see that this condition has the potential to pressure the BoJ policymakers to return the stimulus in October. This view was even stronger following the BoJ's press conference yesterday which said that they could resume easing at next month's meeting, after seeing signs of a loss of momentum towards the 2 percent inflation target.
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