Last week the Yen surged against its US counterpart in response to a report which indicated that the Bank of Japan (BOJ) is reconsidering the idea of boosting its current stimulus programme.
The Yen has come under pressure in recent weeks amid concerns that the BOJ could go the way of other major central banks (including the Swiss National Bank, Reserve Bank of Australia, the European Central Bank and the Bank of Canada) and step up stimulus measures to combat domestic and global economic pressures.
In April of 2013 the BOJ attempted to kick-start the domestic economy by introducing an unprecedented level of quantitative easing. This was followed up with further easing towards the close of 2014. Given the current global deflationary climate and the drop-off in commodities like crude oil, many industry experts had envisaged more QE being in the pipeline.
However, on Friday Bloomberg reported that BOJ policymakers currently believe that extra stimulus measures would be counterproductive as they would result in a softer domestic currency and reduced confidence among consumers.
The hints that the central bank could be set to adopt a different approach to bolstering growth and boosting inflation in Japan saw the Yen advance to 119.00 against the US Dollar, a marked improvement on the day’s opening level of 120.45.
The Yen has since strengthened further against the ‘Greenback’, achieving 118.7800 in spite of disappointing Japanese growth data.
Preliminary figures put the Japanese economy expanding at 0.6% in the fourth quarter of 2014, quarter-on-quarter, rather than the 0.9% growth expected. This resulted in an annual figure of 2.2%, considerably less than the 3.7% forecast.
Business spending in the nation rose by just 0.1% on the quarter while private consumption advanced 0.3%.
The data, while falling short of forecasts, did show that the Japanese economy escaped recession in the final three months of last year by rebounding from the contraction recorded in the third quarter – largely thanks to stronger exports to the US.
After the report was published the Yen advanced to a ten-day high against the US Dollar. The Japanese Yen to Pound Sterling (JPY/GBP) exchange rate also strengthened.
Separate figures showed a 0.8% increase in Japanese industrial production in December, month-on-month, and an annual reading of 0.1%.
Yen volatility is likely to occur later in the week as the BOJ gathers for its latest policy meeting. The central bank is set to review national growth and inflation.
Other Japanese reports to be aware of in the days ahead include Machine Tool Orders, Merchandise Trade Balance, the All Industry Activity Index and Markit’s Manufacturing PMI for February.
During the European session the US Dollar to Japanese Yen (USD/JPY) exchange rate was trading in the region of 118.5000