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Japanese Central Bank Boss Keeps the YCC, USD/JPY Flying

by Didimax Team

The results of the Bank of Japan's (BoJ) first regular meeting under its new Governor, Kazuo Ueda, showed a commitment to maintaining ultra-loose monetary policy.

That is included the controversial yield curve control (YCC) policy. As a result, the yen exchange rate collapsed in trading on Friday (28/April). 

Baser on the data, the USD/JPY jumped about 1.5% to a range of 136.00. EUR/JPY jumped nearly 1.2% to its highest record since December 2014. GBP/JPY also flew nearly 1.3% to its highest level in about five months.

Market participants have actually expected Bank of Japan to keep their interest rates at -0.1% - according to Ueda's testimony before the Japanese Parliament some time ago. 


Ueda Said that Inflation Should be Strong Enough 

However, some previously hoped the BoJ would modify YCC policy as a first step in policy normalization under the new leadership. The announcement of the results of the BoJ's policy meeting this morning scorched all expectations. 

That institution announced inflation projections for all groups of goods (including food and energy) will be in the range of 2.5% for fiscal 2023. Then, those fall to a range of 1.5%-2.0% in 2024 and 2025. 

In fact, Ueda has insisted that inflation must be "strong enough and close to 2%" on a sustainable basis before it is willing to make any adjustments to YCC policy.

The Central Bank will continue QQE (Qualitative and Quantitative Monetary Easing) with Yield Curve Control. The aim is for achieving the price stability target for as long as necessary.

BOJ Meeting Result Dissapointed Most Traders 

The price stability is important to maintain the target stably as it can be read from the BoJ's latest policy outlook. Furthermore, the policy outlook even mentions more points to note. 

One of them is about the central bank that will not hesitate to take additional easing measures if needed. Inevitably, the results of the BoJ meeting this time disappointed traders and investors at home.

Besides that, it also dissapointed the traders abroad from Japan. Elsewhere, the world crude oil prices weakened in Asian trading on Wednesday.

It was as overshadowed by several sentiments. Brent oil was down by 1.94 percent at $84.64 per barrel. Meanwhile, WTI or West Texas Intermediate was down by 2.29 percent at $80.75 per barrel

China’s Fundamental Data Supported the Oil Movement 

Positive Chinese fundamental data had supported yesterday's oil price movements. China's first-quarter 2023 GDP and compact retail jumped above expectations.

These were reviving the prospect of increased demand from the world's largest energy consumer. However, market euphoria did not last long as it was hampered by market concerns about the prospect of a Fed rate hike. 

The probability of a 25 bps hike at the FOMC meeting in May has now reached 85 percent. That is why; the dollar rate strengthened and pressured the oil demand side. 

In addition, the Fed's interest rate hike also triggered risk-off sentiment due to the risk of economic recession. The next move will probably depend on global growth.

Iraqi Government agreement also Takes a Role

The further action will depend on whether the United States can weather the storm amid tightening credit and could weigh on growth for the rest of the year.

That was stated by an OANDA analyst Craig Erlam said in a note. Oil prices were also pressured by news that the Iraqi government had reached an agreement with the Kurdistan regional government (KRG).

The agreement stated that it would revive oil production in the northern region. This has the potential to significantly increase Iraq's output and add to the world's oil supply. 

Despite some of the sentiments affecting oil prices, Dennis Kissler at BOK Financial believes that the rally in oil prices that has occurred since OPEC cut output by 1.6 million bpd does require a correction. 



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