Thursday 28 July 2016

Why are everybody is waiting for the meeting of the Bank of Japan?

USD/JPY is now a fairly complex market. Tomorrow's meeting of the Bank of Japan's is getting nerves of traders heated up much stronger than yesterday's meeting of the Federal Reserve. Market participants are in doubt - bet on increasing of monetary stimulus, or mentally prepared for the fact that on Friday the Bank of Japan would not live up to expectations?
The fact that on Wednesday the Japanese prime minister Shinzo Abe announced a solid amount of fiscal stimulus measures package of 28 trillion yen increases the pressure on the Bank of Japan in terms of action. Earlier, the head of the Central Bank Kuroda emphasized that fiscal and monetary easing are effective when used together. Apparently, the Japanese government wants from the formally independent central bank further policy easing. According to one point of view, for the Bank of Japan it is strategically important to act now, because with conscientious actions with the government the effect of the measures will be higher. According to Bloomberg, 80% expect the Bank of Japan will increase incentive program this week.
From another point of view, the measures taken by the Japanese government as well as the fact that the USD/JPY is trading at 105.00, and not at a critical level at 100.00, on the contrary, mean that the Bank of Japan decides to reserve monetary stimulus for "rainy days". Huge amounts of money, which the Japanese regulator has poured into the financial system of the country, could not help inflation. The more money "prints" the Japanese Central Bank, the harder it becomes to manage the situation. The lack of action by the regulator will cause the resumption of downtrend of USD/JPY, and bears rush to new lows. The Bank of Japan, of course, is aware of the pressure under which it is located and the potential consequences of inaction - that's why the majority of analysts believe that the amount of monetary stimulus will still be increased tomorrow.


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