YEN FELL LOWER AS FEDS BEGIN HIKING, RISING PRICES MIGHT HURT SMALL FIRMS
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Author: Mr Amar – Technical Analyst

The yen was fixed at a six-year low against the dollar on Thursday as a US interest rate hike and a dovish outlook underscored the extent to which the Bank of Japan (BOJ) is likely to hold back on tightening global policy, while excellent jobs data gave a boost to the Australian dollar. The US Federal Reserve raised rates for the first time since 2018, raising the Fed Funds Target Rate by a quarter of a point. Forecasts by its policymakers of up to six more rate hikes this year were even higher than expected. In contrast, Bank of Japan Governor Haruhiko Kuroda on Thursday downplayed the possibility of inflation hitting a 2% target and advocated ultra-loose monetary policy.

The yen hit 119.13 per dollar overnight, its lowest since early 2016, and last stood at 118.75. It fell 1.6% against the Australian dollar on Wednesday and fell further to a four-year low of 87.05 yen per Australian dollar on Thursday. The market expects the US Federal Reserve to hike rates later this year. On the contrary, the BOJ is committed to an extremely flexible adjustment policy. The Bank of Japan wraps up a two-day meeting on Friday and is not expected to ease its dovish stance.

Governor Haruhiko Kuroda said on Thursday, its too early to debate specifics on how to exit easy policy. As inflation nears the BOJ’s 2% target, the BOJ policy body will disclose the position on exiting dovish policies. If the BOJ considers exiting loose policy, it will do so by ensuring markets remain stable. Even with the impact of cell phone tariff cuts fading and the impact of energy price hikes reflected in the consumer price index, don’t expect inflation to consistently reach the BOJ’s 2% target just yet. Given rate trends in Japan, BOJ will preserve the present-day large stimulus program.