USD/JPY: Yen Falls as BOJ Reiterates Easing Commitment

The Japanese yen is foreseen to continue weakening opposite the US dollar today as views of additional monetary easing by the Bank of Japan intensify after the central bank governor Masaaki Shirakawa stressed his resolve to maintain ultra-easy policy amid global uncertainty. According to sources familiar with the central bank’s thinking, policymakers are leaning toward easing in the BOJ’s policy meeting next week.

In a speech at a quarterly meeting of the central bank’s regional managers, Shirakawa expressed that global economic uncertainty remains high, calling for vigilance over the effects of financial and currency moves on the economy and on prices. He also said that economic growth will remain flat for the mean time but then resume a moderate recovery as domestic demand holds steady. Echoing this assessment is the central bank’s quarterly report evaluating regional sectors of the economy. In the report, the BOJ cut its assessment of eight of the country’s nine regional economies, suggesting that the ongoing territorial dispute with China and slowing global demand are taking their toll on the export-reliant economy. It was the biggest number of downgrades since January 2009, when the central bank slashed its view for all nine regions. Considering such backdrop, he reiterated that the BOJ will continue pursuing easy policy via steady purchase of assets.

The bank has been under renewed pressure to expand monetary policy stimulus at its October 30 rate meeting, when it is widely expected to cut its growth forecasts and delay the timing of hitting its 1 percent inflation target. Yesterday, economic reports offered the latest evidence that the Japanese economy is struggling amid global headwinds and softening demand at home. Exports fell the most since the aftermath of last year’s earthquake as a combination of the global slowdown, the Yen’s strength, and a dispute with China are increasing the odds of a contraction in the world’s third largest economy. Exports fell by 10.3 percent in September from a year earlier, surpassing forecasts of a 9.6 percent drop. Shipments to China, Japan’s top export market, dropped 14.1 percent from a year earlier while exports to the European Union fell by 21.1 percent. Meanwhile, business sentiment, hampered by the diplomatic row with China, hit its lowest since 2010.

In response, the BOJ is leaning toward a further 10 Trillion Yen increase to its asset-buying and lending program. The increase would mostly come in the form of government bond-buying, and could include a small rise in purchases of exchange-traded funds and real estate investment trusts. With the BOJ likely unveiling further easing next week, the Yen is presumed to fall, warranting a long position today.

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