Investors took a closer look at the US central bank's statement, confirming that rate cuts are possible solutions in order to sustain expansion. Meanwhile, the Bank of Japan monetary policy meeting did not bring anything new to the table, although Fed and ECB are shifting policy towards a dovish bias. Therefore, we should see JPY gaining traction as market uncertainties, BoJ limited room of maneuver remain key arguments.
Similarly to prior meeting in 25 April 2019, BoJ members have been voting 7 – 2 to maintain ultra-loose monetary policy, with short- and long-term interest rates -0.10% and around 0% respectively while maintaining the pledge to increase government bonds holdings by JPY 80 trillion ($742 billion) per year. The BoJ's economic assessment is unchanged, indicating that the economy is growing at a moderate pace and unlike the Cabinet Office cut from “weakening” to “worsening” two weeks ago. As the trade war is reducing Chinese demand of Japanese goods, and easing from both the ECB and the Fed would have a negative impact on the Yen and ultimately on economic growth and inflation, some analysts are expecting the BoJ to cut interest rates, even if such a reaction would have a limited impact in our view. Japanese banking sector already faces heavy margin pressures, while a further decrease in interest rates could harm the financial health of the sector. On the other hand, a stronger JPY would also become a major impediment for the Japanese exporting industry looking forward.
USD/JPY currently trades at 107.78, approaching major support at 107.68 (03/01/2019).