Disappointing BOJ announcement sees yen strengthen

This week’s announcement by the Bank of Japan that monetary easing efforts will be less aggressive than expected saw the US dollar drop against the yen. The BOJ is under pressure from the new government to act decisively to pull the country’s economy out of recession.

The central bank said it will double its target for inflation and introduce open-ended asset buying next year. Although the moves are bold, they are not as strong as many analysts were expecting. The dollar is currently worth 88.28 yen, a drop of 0.5 per cent.

However the greenback is still up 11 per cent compared to mid-November and hit its highest level in more than two years on Monday of 90.25 yen. The euro, which hit a 20 month high of 120.73 yen at the end of last week, lost 0.6 per cent to end at 117.52 yen.

Many analysts are predicting that the yen will weaken over the longer term as the BOJ is forced to introduce more stringent measures to boost the Japanese economy. Current governor of the BOJ, Masaaki Shirakawa, is due to step down in April giving Prime Minister Shinzo Abe the chance to appoint someone who is more likely to implement his tough policies.

Societe Generale strategist, Kit Juckes, said the disappointment surrounding the BOJ’s announcement shows that the policy move, at least in the short-term, has changed little. He added however that he believed the coming year will see the level of the US dollar against the yen move higher.