JPY is vigorous. Overview for 27.12.2022

The Japanese yen against the US dollar remains strong. The current quote is 132.89.

A week has passed since the intervention of the BoJ, and the yen has renewed the highs of the last 4 months. Now it is going back very smoothly and almost unnoticeably. Meanwhile, it must be admitted that the interventions had quite a pronounced effect.

In today's comments, the head of the Bank of Japan mentions that the widening of the admissible fluctuation borders around the target level of state bonds yield was not at all the first step towards the exit from the ultrasoft monetary policy. According to the politician, Japan is at a turning point where all decisions are crucial. The question is, whether the country will be able to get out of the low inflation period that has extended too much.

In the second half of 2023, the growth of consumer prices in Japan will slow down. In the next financial year, base inflation in the country might end up below 2%. This is the official forecast of the BoJ.

It is quite hard to make any long-term plans based on these forecasts: it is unclear, how exactly the authorities will be supporting the labour market seeing a slow-down there. Transition to accomodating monetary policy might be hindered. There are more questions than answers here, and the Bank of Japan would not share its decisions.

For the JPY, worsening of inflation expectations might be a negative signal. Seems like the CB is running out of efficient instruments.