Oct 04, 2022
VOT Research Desk
Analytical Viewpoint
A number of international central banks are starting a series of rate rises and balance sheet reduction programmers, which are putting pressure on the Bank of Japan to abandon its ultra-loose monetary policy.
While many central banks, such as the Federal Reserve (Fed) and the Bank of England (BoE), are attempting to navigate a challenging course of stifling rampant inflation while leaving their economies with enough liquidity to grow, the BOJ is facing a different set of issues, including anemic growth and persistently below-target inflation.
The Japanese Yen keeps declining as interest rate gaps between Japan and other major economies grow. Furthermore, it appears that the Bank of Japan is actively supporting this development rather than only watching it unfold.
UP AND DOWN ABOUT THE JAPANESE YEN
Like other central banks, the Bank of Japan employs market communication as a crucial and effective instrument to control the value of the yen. The Bank of Japan gets more outspoken about what level it would be happy with as the currency approaches that level.
The BOJ will attempt to “talk it down” if the currency becomes too costly, while they will “talk the currency up” if the currency becomes too cheap. A bank needs market credibility or a track record of acting on its beliefs in order to be effective in influencing the value of a currency.
The monthly chart demonstrates that the 125.00 level persisted for over two decades because the market saw it as the BOJ’s demarcation line. Now that level has been completed.
