The Japanese Yen has been struggling this week. Today, these struggles continued after the Bank of Japan (BOJ) left interest rates unchanged and lowered the inflation estimates for 2018. The decision on interest rates was expected going by the previous statements. What was not expected was the decision to lower 2018’s inflation estimates to 0.9% from the forecast made in July of a 1.1% increase. The forecast for 2018 was lowered to 1.4% from the July’s estimates of 1.5%. On quantitative easing, the bank said that:
The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively. With a view to lowering risk premia of asset prices in an appropriate manner, the Bank may increase or decrease the amount of purchases depending on market conditions.
Among the main concerns for the Japanese economy is the contagion which will be caused by the global trade war initiated by the Trump administration. Japan is an economy that will be greatly affected if the trade war leads to increased global growth because it is an export driven economy.
On inflation, the Japanese economy has a problem in that its citizens prefer savings than spending. It also has many people who are either in retirement or close to the retirement age. Statistics show that countries with many young people tend to have more consumer spending. This is because the young people prefer buying cars, houses, and spending money in leisure activities. All this has contributed to the low rate of inflation despite the improving economic situation in the country.
The USD continued strengthening against the yen. There is a likelihood that this trend will continue as the new month starts. If it does, the pair will likely attempt to test the important support level of 114.50.
