The Japanese Yen is struggling to gain traction as the Bank of Japan (BOJ) remains committed to its ultra-loose monetary policy. This commitment stands in stark contrast to the hawkish approaches adopted by other major central banks, such as the Federal Reserve and the European Central Bank, which are actively raising interest rates to curb inflation.
The divergence in monetary policy is creating a significant interest rate differential, making the Yen less attractive to investors seeking higher returns. This dynamic is fueling capital outflows from Japan and further weakening the Yen.
Several factors contribute to the BOJ’s reluctance to tighten monetary policy:
- Low Inflation: Unlike many other developed economies, Japan has not experienced significant inflationary pressures.
- Economic Growth Concerns: The BOJ is prioritizing supporting economic growth, which it believes could be jeopardized by premature tightening.
- Wage Growth: The BOJ is waiting for more sustained wage growth before considering any policy changes.
Analysts predict that the Yen will remain under pressure as long as the BOJ maintains its dovish stance and the interest rate differential with other major economies persists. The currency’s trajectory will largely depend on the BOJ’s future policy decisions and the global economic outlook.
