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BOJ drops proposal for further easing

On Friday morning, BoJ meeting concluded with a surprise move, after Deputy Governor Kiyohiko Nishimura dropped his vote to loosen policy further by raising stimulus by Y5tln. The proposed expansion of the central bank's asset-buying scheme was turned down by an 8-1 margin.

The BOJ had already eased policy right after the devastating earthquake from March by injecting up tp 10 trillion yen ($122.5 billion) through the purchase of financial assets including government bonds and corporate debt. The BOJ also maintained its economic assessment, saying the economy is facing strong downward pressure.

The statement highlighted the downward pressure on the production side due do supply-side constraints caused by the devastation, resulting in weaker exports and domestic demand. What´s more, inflation as recorded by the CPI remains around 0% with the rate decline continuing to slow.

The bank puts forth a baseline scenario of a modest recovery in the 2nd half of 2011 as supply-side constraints ease and production picks up, with expectations for the economy returning to a normal sustainable growth path with price stability in the longer-run.

In an effort to aid the economy regaining traction, the BoJ insisted on continuing to make contributions through a “comprehensive monetary easing, ensuring financial market stability, and providing support to strengthen the foundations for economic growth.”

USD/JPY rises as the Yen wakens

USD/JPY rebound from 80.95 low on Wednesday was capped on Thursday's US session at 82.25, and the pair retreated below 82.00 to consolidate between 8.40 and 81.80 during Asian session.

According to Karen Jones, technical analyst at Commerzbank, the USD/JPYmight open a consolidation phase, ahead of another bull run towards the 200-day MA at 82.77.Above 82.77, the pair would target hey resistance at 84.49, 4-year downtrend: "We would allow for some consolidation prior to tackling the 200 day ma at 82.77.

Above 82.77 should be enough to retarget the more important 4 year downtrend at 84.49," she added.Japan back into recession

Japan back into recession

Japan’s economy results were worse than estimated in Q1 after the March 11 earthquake and tsunami, sending the nation to its third recession in a decade. Japan's gross domestic product contraction was larger than expected, beating expert forecasts of -0.5%. "That is of course negative for the Yen but also negative for risk-on trades; therefore net effect of zero" observes Sean Lee at Forexlive.

“The result translated into an annualized contraction of 3.7 percent, much worse than the median economist forecast of a 2.0 percent contraction and compared with annualized growth of 1.8 percent in the United States in the same quarter,” reports Tetsushi Kajimoto and Rie Ishiguro at ThompsonReuters.

Analysts interviewed by think that although there's not a single definition for recession, it's commonly accepted that a recession is "two consecutive down quarters of GDP" as economic statistician Julius Shiskin suggested in a New York Times article in 1975; other economists prefer a definition of "a 1.5% rise in unemployment within 12 months".

Looking at the recent macroeconomic data, we see that Japanese GDP has not met this condition yet as the rising sun economy grew a 1.10% in the last quarter of 2010. "Therefore we consider this is just a momentary shock in growth due to tsunami impact in economy. Probably the effect will extend into the second quarter too but we have to consider this as an exogenous shock in economy rather than a recession. A recovery in consumer spending in the next months will confirm this hypothesis, as Japanese economy is expected to recover on the second half of the year, once the effects of the shock have been absorbed by the economy" explains Alberto Muñoz, analyst with

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