Research Briefing | Apr 28, 2022

BoJ holds firm, despite weak yen’s negative for economy

Research Briefing | Japan

As expected, the Bank of Japan (BoJ) left monetary policy unchanged at today’s (28th April 2022) meeting, maintaining current short- and long-term interest rates.

Amid a sharp depreciation of the yen, now at a 20-year low against the US dollar, financial markets have focused on the BoJ’s possible adjustment to its monetary easing framework to mitigate pressures on the yen from the widening interest rate differentials.

What you will learn:

  • We have changed our yen forecast, with recent yen weakness likely to persist until Q4 this year when financial markets begin to question the sustainability of Fed hikes amidst a slowdown in inflation and growth in the US.
  • We believe that a weak yen is unfavourable to growth because it exacerbates the damage to households’ purchasing power from the combination of high commodity prices and stagnant wage growth. 
  • Based on a revised weaker path of the yen, headline CPI is projected to stay around 2% throughout the year before slowing rapidly in 2023.
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