Global Institute of Trading

Can JPY return to pre-Covid levels?

The Bank of Japan is expected to keep its main monetary settings unchanged, even as the yen’s rapid weakening to a two-decade low fuels market speculation about a possible adjustment to policy or messaging.

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Yen overview

The Bank of Japan is expected to keep its main monetary settings unchanged, even as the yen’s rapid weakening to a two-decade low fuels market speculation about a possible adjustment to policy or messaging.

The central bank begins a two-day meeting on Wednesday and is poised to maintain its negative interest rate and asset purchase programs, according to 89% of economists surveyed by Bloomberg. About 10% of those polled expect a shift in forwarding guidance toward a tightening direction.

BOJ Governor Haruhiko Kuroda is in an awkward position given that his commitment to an easing stance has helped fuel the yen’s rapid weakening, adding to households and firms’ woes by exacerbating soaring energy prices.

At the same time, any tightening would cool an economy that’s yet to return to its pre-Covid level and hurt Kuroda’s credibility given inflation remains well short of the stable 2% he is seeking.

The BOJ’s communications task will be further complicated by the release of its quarterly outlook. The report will probably show forecast inflation revised up toward 2%, mainly due to the sharp rise in fuel prices.

he bank will need to make clear the updated outlook doesn’t mean it is approaching its price stability target and that cost-push inflation is putting the economy at risk of a slowdown, the people said. Any figure beyond 1.2% would mean the BOJ is forecasting the fastest inflation in three decades, outside years when there were tax increases.

Seeking 2% inflation

Prime Minister Fumio Kishida urged the Bank of Japan to keep working toward its inflation goal after announcing a package of measures to relieve the pain of soaring energy and food prices amplified by a slide in the yen to a two-decade low.

“The BOJ has a policy of seeking 2% inflation, and the government hopes it will continue its efforts to achieve that,” Kishida told reporters after the government unveiled 6.2 trillion yen ($48.5 billion) in steps to ease the burden of higher prices on companies and consumers.

“The rise in oil prices and general inflation must be prevented at all costs from hindering the recovery of socioeconomic activity from the pandemic,” he added. 

Commenting on the weak yen, the prime minister also said that sudden fluctuations in currencies are undesirable. Currency levels depend on an array of factors including economic and monetary policy, he added.


The latest aid package from the government will likely offer some cover for the BOJ to stick with rock-bottom interest rates that have contributed to the fall in the yen. The measures come just two days before the BOJ announces its latest policy decision with economists widely expecting the central bank to stick with its monetary easing settings.

What could we see in JPY crosses?

Although the BOJ and Kuroda are trying their hardest to stop the decline in the Yen, unfortunately not much has worked at this stage. We still maintain a bearish outlook on JPY and wish to continue buying crosses.

More specifically the USD/JPY we find most attractive. We may see some short relief in the pair back to 124.500 before bulls start to jump back in. We maintain our view at 134.500

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