Japan’s Monetary Policy Situation: Brighter Future Outlook For Japan’s Economy

Author: Mr. Amar – Technical Analyst

According to the Bank of Japan’s Deputy Governor, Masazumi Wakatabe, he claimed that hitting a 2% inflation for several months won’t be meeting BoJ’s price target. This target is crucial for a sustained basis for Japan’s inflation expectations to change. Appropriate to tighten monetary policy only when price gains driven by external factors trigger second-round effect, push up wages, inflation expectations. But again, they need to bear in mind that risk supply constraints may last longer than expected, have a broader impact on the global economy.

On the technical side, USD/JPY sets to climb back up after an inverse head and shoulder pattern has emerged. The move to the downside yesterday stalled the fall right at its retracement level. On the Asian session today, the price is crawling back and stayed below on corrective moves after that break. For now, the borders have been set for traders. On the topside, the focused price is at 115.100, whereby if this area is a break, the price will pierce higher.

Japan’s economy is no longer in deflation, after having suffered from moderate but persistent deflation for many years. The Bank’s objective in setting the price stability target of 2 percent and continuing with monetary easing is not merely to achieve inflation. Based on the lessons learned from past experience where wages, income, employment, and business activity were subdued amid a decline in prices, monetary easing aims to create a virtuous cycle where inflation leads to increases in wages, income, and employment, thereby boosting business activity.

It may yet take time to create this virtuous cycle, but positive moves have been made as we progress toward the post-pandemic era at home and abroad. With a view to ensuring such positive moves, the Bank will continue to fulfill its mandate and communicate clearly its policy intention without misunderstanding.