The Yen extended its losses following the Bank of Japan’s (BOJ) announcement to keep its monetary policy unchanged. The central bank cited concerns about the fragile economic recovery and the need to support domestic demand as reasons for maintaining its dovish stance.
Key Factors Influencing the Yen
- BOJ’s Monetary Policy: The BOJ’s commitment to its yield curve control policy, which keeps interest rates near zero, contrasts sharply with the tightening measures taken by other major central banks.
- Global Inflation: While inflation is a concern globally, the BOJ believes that Japan’s inflation is primarily driven by cost-push factors rather than demand-pull, justifying its reluctance to raise interest rates.
- Interest Rate Differentials: The widening interest rate differentials between Japan and other countries, particularly the United States, are putting downward pressure on the Yen.
Market Reaction
The market reacted swiftly to the BOJ’s decision, with the Yen falling against the US dollar, the Euro, and other major currencies. Investors are betting that the BOJ will eventually be forced to adjust its policy, but for now, the Yen remains vulnerable.
Expert Commentary
Analysts predict that the Yen will continue to weaken in the near term, unless the BOJ signals a change in its policy direction. Some experts suggest that the BOJ may eventually be forced to intervene in the currency market to stem the Yen’s decline, but such intervention is unlikely to be a sustainable solution.
