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Reading: Japan press – BOJ board member Takata says now is not the time to end yield curve control
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LazyTrader > Insights > Forex > Japan press – BOJ board member Takata says now is not the time to end yield curve control
Forex

Japan press – BOJ board member Takata says now is not the time to end yield curve control

Team Lazy
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Bank of Japan monetary policy board member Hajime Takata in an interview with Japan’s Nikkei newspaper published on Saturday.

  • Japan’s economy is not yet in a phase where the central bank can end yield curve control (YCC)
  • too soon to start a discussion about concrete methods of ending yield curve control
  • careful messaging would be needed when the time comes

Takata acknowledged that risks have built due to the prolonged period of ultra-easy policy.

–

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Takata is basically saying the same as Bank of Japan Governor Kuroda. Kuroda has repeated time and again that current policy is appropriate. This from just last week:

  • when achieving the inflation
    Inflation

    Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.

    Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
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    target comes in sight the BOJ will likely debate a path towards an exit from easy monetary policy
  • at present, though, the benefits of current monetary easing outweighs the costs

It pays to be aware that there is some murmuring in Japan about trimming back easy policy. From senior officials. As an example:

  • BOJ’s Tamura says policy should be reviewed, says 2% CPI goal may be too high for Japan
  • Possible BOJ Kuroda replacement says the Bank should review its policy

–

While an exit from YCC or any other leg of Japan’s current ultra-loose monetary policy is not imminent, its something to watch out for in the new year, most likely some time after Q1. Governor Haruhiko Kuroda’s finishes in April 2023. New blood could bring new ideas. The JPY
JPY

The Japanese yen (JPY) is the official currency of Japan and at the time of writing is the third most-traded currency in the world behind only the US dollar and euro.The JPY is used extensively as a reserve currency and is relied upon by forex traders as a safe haven currency.Originally implemented in 1871, the JPY has had a long history and has survived multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and the full oversight of the JPY by the Japanese government only in 1971.Japan has historically maintained a policy of currency intervention, continuing to this day. The BoJ also adheres to a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policyWhat Factors Affect the JPY?The aforementioned role of the BoJ has dramatically shaped the JPY in forex markets. Any further changes in monetary policy by the central bank are closely watched by forex traders.Additionally, the Overnight Call Rate is the key short-term inter-bank rate. The BoJ utilizes the call rate to signal monetary policy changes, which in turn impact the JPY.The BoJ also purchases both 10- and 20-year Japanese government bonds (JGBs) on a monthly basis in order to inject liquidity into the monetary system. The consequent yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates.Economic data is also very important to the JPY. The most important of these releases in Japan are gross domestic product (GDP), the Tankan survey (quarterly business sentiment and expectations survey), international trade, readings of unemployment, industrial production, and money supply (M2+CDs).

The Japanese yen (JPY) is the official currency of Japan and at the time of writing is the third most-traded currency in the world behind only the US dollar and euro.The JPY is used extensively as a reserve currency and is relied upon by forex traders as a safe haven currency.Originally implemented in 1871, the JPY has had a long history and has survived multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and the full oversight of the JPY by the Japanese government only in 1971.Japan has historically maintained a policy of currency intervention, continuing to this day. The BoJ also adheres to a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policyWhat Factors Affect the JPY?The aforementioned role of the BoJ has dramatically shaped the JPY in forex markets. Any further changes in monetary policy by the central bank are closely watched by forex traders.Additionally, the Overnight Call Rate is the key short-term inter-bank rate. The BoJ utilizes the call rate to signal monetary policy changes, which in turn impact the JPY.The BoJ also purchases both 10- and 20-year Japanese government bonds (JGBs) on a monthly basis in order to inject liquidity into the monetary system. The consequent yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates.Economic data is also very important to the JPY. The most important of these releases in Japan are gross domestic product (GDP), the Tankan survey (quarterly business sentiment and expectations survey), international trade, readings of unemployment, industrial production, and money supply (M2+CDs).
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is seeing a headwind from current policy, especially as most other DM central banks jack rates higher. A change to YCC or any of the other planks of easy policy would be yen supportive, at the margin.

Bank of Japan monetary policy board member Hajime Takata. Takata is one of two new board members appointed under Prime Minister Kishida.

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Team Lazy December 10, 2022
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