Without much surprise, the Bank of Japan (BoJ) has not decided to implement additional monetary policy easing measures, as its practicability remains a major challenge for central bank members. Yet the sudden rise in JPY across the board strongly highlights the fact that investors consider the BoJ’s room of maneuver to be very limited, as the Fed is likely to reduce interest rates tomorrow for the first time in over a decade. The scenario of further JPY appreciation is therefore highly plausible since major central banks are expecting to cut rates while uncertainties in the global economic outlook and dragging US – China trade dispute remain.

The BoJ kept its monetary policy unchanged, with its short-term interest rate target at -0.10% and its long-term 10-year JGB yields along 0%. Furthermore, it maintains its pledge to increase government bonds holdings by JPY 80 trillion ($684 billion) and purchases of JPY 6 trillion ($55 billion) in Japanese shares per annum. While both the BoJ and Japan’s Cabinet lowered growth forecasts by respectively 0.70% (prior: 0.80%) for FY 2019 and 0.90% (prior: 1.30%) through March 2020, the BoJ added in its statement “it will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost”. Japan’s core inflation continues to disappoint, with June year-on-year core CPI (ex. food) pointing to 0.60% from 0.80% in prior month, while BoJ core CPI forecast for FY 2019 is projected to rise 0.80% (prior: 0.90%), suggesting that additional expansionary measures are likely to come sooner or later. Accordingly, JPY momentum is likely to stay.


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