USD/JPY Fundamental Daily Forecast – BOJ Wants Fiscal Policy to Play Bigger Role in Battling Economic Risks

Bank of Japan board members said the central bank must work carefully with the government in dealing with the next economic downturn, minutes of the BOJ’s October rate review showed on Tuesday.
James Hyerczyk

The Dollar/Yen is trading flat on extremely low volume as most traders have taken to the sidelines ahead of the Christmas holiday on Wednesday. The Forex markets are open in Japan, but closed in Europe, New Zealand, Australian and the United States.

There is only one report from the U.S. on Tuesday. According to CNBC, the Federal Reserve Bank of Richmond will release its monthly Business Activity Survey at 15:00 GMT. The survey shows the state of manufacturing activities including shipments, new orders and employment in the sector.

The manufacturing sector softened in November, weighed down by negative readings for shipments and new orders, the survey showed last month. Manufacturing firms also reported a drop in backlog of orders, but they were optimistic that conditions would improve in the coming months, the Richmond said in its last survey.

At 08:07 GMT, the USD/JPY is trading 109.381, up 0.001 or 0.00%.

The recent price action has been driven by the U.S. stock and Bond markets. Both close at 18:00 GMT and 19:00, respectively.

BOJ Debated Monetary, Fiscal Policy Mix as Cost of Ultra-Low Rates Rises

Reuters reported early Tuesday that a few Bank of Japan board members said the central bank must work carefully with the government in dealing with the next economic downturn, minutes of the BOJ’s October rate review showed on Tuesday.

The nine-member board also debated the demerits of prolonged monetary easing, with one warning that life insurers could struggle to meet provisions guaranteed to policy holders if current ultra-low interest rates persist, the minutes showed.

The deliberations highlight the growing view within the BOJ that fiscal policy may need to play a bigger role in battling risks to the economy, given the rising cost and diminishing return of monetary easing.

“The BOJ should prepare for the next economic downturn as among risk scenarios. In doing so, it’s important not only to take monetary policy action but enhance cooperation with the government” such as through fiscal policy, the minutes quoted a few board members as saying at the October meeting.

At the October 30-31 rate review, the BOJ kept policy steady but gave the strongest signal to date that it may cut interest rates in the near future, underscoring its concern that overseas risks could derail a fragile economic recovery.

The nine-member board is split between those who see room to ramp up stimulus to fire up inflation, and those who are more concerned about the demerits of the BOJ’s ultra-easy policy.

“While financial institutions’ soundness was ensured for the moment, the cumulative side effects of prolonged low interest rates warranted vigilance,” a few board members were quoted as saying at the October rate review.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.