Briefly –
- JPY pair hover near their peaks.
- Inflation stays barely at the Bank of Japan’s target.
- Households to adapt to price surges.
Most traders consider the upside breakout by JPY pairs in 2022 as a tale of the trading year’s first half. Indeed, developments have seen spectacular dynamics.
Meanwhile, battling such trends or purchasing the JPY due to its massive and swift slumps remains a risky approach. That holds as such movements will unlikely bother the Bank of Japan.
Therefore, rather than evaluating methods to short the JPY pairs, market players need to contemplate why the pairs remain near their peaks. That means investors are buying each dip. Here’s why the BOJ is unconcerned by the yen’s slump:
- Inflation remains very low.
- The bank trusts price increases are becoming usual for households.
- JPY traders have adapted to the Bank of Japan pushing financial policy to limits.
Inflation Barely Beyond the BOJ Target
Meanwhile, the BOJ has battled to ensure the inflation rate at the 2% target for many decades. It resorted to extreme strategies to attain inflation matching stable economic growth.
And it hit its goal recently. As the western nations battle increased inflation (e.g., the US’s 8.6%), Japan sees slight price surges matching the BOJ’s inflation target.
Furthermore, the latest success in placing inflation at target comes as the bank ended extreme financial policy easing. So, why adjust now and risk returns to deflationary when analysts predict a possible recession in the West?
Households Becoming Used to Price Surges
Kuroda Haruhiko, the BOJ’s governor, appeared in the headlines recently. He stated that the bank trusts households are getting used to price surges, hinting that individuals will adjust to an inflation increase as they adapted to negative inflation for years.
It Isn’t the First Time BOJ Pushed Financial Policy to Limits
Most critics suggest that Japan’s monetary easing rate is unsustainable. That could be true, but you can’t fight a bank as an investor. Moreover, who would start a fight with a central bank known for thrilling fiscal policy decisions?
For instance, while other central banks tighten rates, the BoJ does the opposite, easing policy. That shows the central bank is unbothered by the yen’s weakness, and we can expect the BOJ to maintain the financial move that began in March.