The yen strengthened against the dollar after the Bank of Japan, decided to leave interest rate unchanged at 0.1%. The decision to keep interest rates on deposits was made on 7-2 vote.
The Bank of Japan has further eased the monetary policy by increasing the amount of asset purchases, but stressed that this measure is coordinated with the government program to revive the economy. The volume of purchases of assets will remain at 80 trillion yen per year. The volume of dollar lending program will increase to $ 24 billion. Annual ETF purchases will increase to 6.0 trillion yen from 3.3 trillion yen, almost double the current volume of purchases of such assets. This measure was taken to protect the economy from the impact of the uncertainties caused by the decision of the UK to leave the EU. The decision to increase the volume of ETF purchases was adopted by 7 votes to 2. The volume of dollar lending program now stands at 12 billion dollars.
“The Bank believes that these measures of monetary policy and government programs will have a synergistic effect on the economy”, – said in a statement the central bank about the expectations from the government stimulus package.
Easing of monetary policy is the next step in the update of the economic program of Japanese Prime Minister Abe. On Wednesday, he said that next week will announce the program of budget expenditures in the amount of more than 28 trillion yen.
Leaders of the Bank of Japan believed that the combination of these measures will provide the necessary impetus to the economy and bring it out of stagnation and deflation. However, many economists believe that the updated “abenomics” – nothing more than a repetition of measures that have not worked in the years 2013-2014.
The Bank of Japan also announced that real GDP is likely to grow by 0.9% in fiscal 2018, whereas previously expected to grow by 1.0%. In fiscal 2017 GDP to grow 1.3% vs previously projected growth of 0.1%. In this fiscal year, GDP is likely to grow by 1.0 against the previous forecast of +1.2%.
Earlier, during the Asian session, the yen traded mixed on controversial economic data from Japan. As the national consumer price index published by Statistics Bureau of Japan, fell by 0.4% in June, as well as in the previous month.
Consumer prices excluding prices for fresh food in June fell by 0.5% compared to the same period of the previous year, showing a fall in the fourth consecutive month. Economists had expected a decline of 0.4%.
Excluding energy and food prices, the consumer price index in June rose by 0.4% compared to June 2015, although the growth rate slowed down compared to May, when the index rose 0.6%.
The Bureau of Statistics of Japan said that the consumer price index in June declined at the fastest pace since 2013, while consumption was weaker than expected, despite the most favorable situation on the labor market in decades. The target level of inflation of the Bank of Japan is 2%.
The unemployment rate published by the Ministry of Health, Labour and Welfare and the Bureau of Statistics of Japan, fell in June to 3.1% from the previous value of 3.2%.
It also became known that the vacancies ratio was137 to 100 workers in June. This indicates an improvement compared to the previous month.
Wage growth in Japan has been modest in the past three years. The economists and the central bank had expected improvement in the labor market that will contribute to the growth of inflation as workers demand higher wages, pushing prices up.
Household spending in June fell by 2.2% compared to the same period of the previous year, the drop observed for the fourth month in a row, as households spend less on housing, education and transportation. According to economists, the mood of households are likely to affect long-term growth rate of the yen and a decrease in the stock market of Japan.
Japan Industrial production rose 1.9% after falling -2.6% in May. Analysts had expected an increase of 0.7%. On an annual basis down -1.9% after a previous decline of 0.4%.
EUR / USD: during the Asian session, the pair was trading in the $ 1.1070-80
GBP / USD: during the Asian session, the pair was trading in the $ 1.3150-55
USD / JPY: during the Asian session, the pair fell to Y102.65
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