The Japanese yen is deemed to maintain its weakness opposite the Australian dollar today after Bank of Japan governor Masaaki Shirakawa reaffirmed plans for aggressive monetary easing as data showed the nation remained stuck in deflation in 2012. Consumer prices fell in 2012 for the fourth consecutive year, highlighting the BOJ’s challenge in combating persistent deflation.
The Core Consumer Price Index, which excludes fresh foods, dipped 0.1 percent in 2012 while the prices also declined 0.2 percent in December, further adding pressure on the central bank to make progress in revitalizing the sluggish economy. Earlier today, the BOJ reported that the price of services purchased by corporations fell by 0.4 percent on the year in December following the 0.5 percent drop recorded in the previous month. BOJ Governor Shirakawa acknowledged to reporters last Friday that it would take substantial effort to achieve a 2 percent inflation target announced at the end of its policy meeting last week. The central has pledged to do everything it can to meet the new inflation target declared under pressure from Prime Minister Shinzo Abe, who has made reviving the economy his priority since taking office a month ago.
He also reiterated that while the central bank agreed to the inflation benchmark and unlimited monetary easing through open-ended asset purchases, the government must do its part by pursuing reforms needed to revive growth and improve Japan’s competitiveness. Seemingly responding to his call and auguring of things to come, Prime Minister Shinzo Abe told the World Economic Forum in Davos over the weekend his resolve to end Japan’s deflation woes. In a prerecorded video message, Abe signaled that the Japanese government will put into action measures that can pull Japan out of its long years of deflation. In response to criticism that his administration has exerted extraordinary pressure on the BOJ to implement bolder monetary easing, Abe expressed that the central bank’s independence is guaranteed by law and added it is nonetheless possible for the government and the BOJ to share policies. On views that the central bank will likely unveil further easing, the Yen is apt to dip, warranting a long position for the AUD/JPY trades.
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