BoJ: No sense of optimism – Commerzbank

The fact that the Japanese Yen (JPY) only really started to appreciate at the end of the press conference, after the initial reaction to the rate hike was rather muted. But when the appreciation started, it was quite pronounced. It is clear that the Bank of Japan (BoJ) has made a political decision to support the currency, Commerzbank’s FX strategist Volkmar Baur notes.

Intervention or not intervention

“First of all, we won't know for a while whether BoJ intervened on behalf of the MOF at that exact moment. But it certainly looks that way. This makes the BoJ the only central bank that has to intervene within hours of a rate hike in order for the currency to react as it ‘should’. By intervening, the BoJ is betting that inflation will remain high and the economy robust. If this is not the case - the JPY could go the other way again.”

“Second, at least one of Governor Ueda's answers during the press conference was surprising. When asked why rates were being raised now and not later, given the weak economy and falling inflation, he said that the rate hike would only slow down the economy a bit. But shouldn't the economy be supported in such an environment?”

“And third, there is still talk about the positive feedback loop between rising wages and rising domestic inflationary pressures. Buy, within the data, real wages continue to fall because inflation is higher than wage growth, which is also burdened by higher social security contributions. So, there is no sense of optimism, higher consumption and the resulting demand-driven inflation.”