The US dollar has posted small gains, as USD/JPY briefly punched above the 115 line in the Asian session. The yen looked golden last week with gains of 1.15%, but has given up half of those gains so far this week.
BoJ revises inflation forecast
The Bank of Japan’s policy meeting are generally uneventful affairs, with the bank reaffirming its monetary policy. The bank did maintain policy, keeping interest rates at -0.1% and maintaining bond yield targets and asset purchases. But there was a difference at this meeting, with the bank revising upwards its inflation forecast, for the first time since 2014. This is significant because the BoJ is acknowledging that inflation could overshoot its projections, something we never saw in the years of deflation.
Inflation in Japan is much lower than in the US or UK, where the central banks have had to tighten policy in order to deal with what has inflation, which has become Enemy Number One. The global wave of inflation, which has seen energy and raw material costs soar, has also reached Japan, and the increase in inflation has forced the BoJ to pay attention to the new phenomenon of rising inflation. For the fiscal year starting in April, the BoJ is projecting inflation of 1.1% up from 0.9% gain it forecast in October. Last week, Reuters reported that the BoJ is considering the eventuality of having to raise interest rates even if inflation does not reach the bank’s two percent target.
The BoJ’s ultra-accommodative policy won’t be changed anytime soon and inflation still remains below 2%. Still, it is noteworthy that for the first time in years the BoJ is addressing inflation concerns, and that could eventually lead to a shift in policy.
USD/JPY Technical
- There is resistance at 115.54, followed by 116.88
- There is support at 113.18 and 112.16