The Japanese Yen weakened across the board throughout BoJ Governor Ueda press conference. He sounded like someone who’s not in a rush to hike rates at all. The two key lines were “monetary tightening effectively works on demand-driven inflation, but current inflation is largely supply-driven” and “current FX rate not diverging far from our assumptions”.
He’s basically saying that the current inflation is likely to be a one-off event and we all know how much weight they place on sustained inflation to durably hit their 2% target. And the comment about FX suggests that the depreciation in the JPY does not concern them at all, which gives the market the green light for further depreciation (all else being equal).
For JPY to strengthen, we will need weak US data to increase the dovish bets on the Fed or
higher inflation figures for Japan. Another potential positive driver could be signs of more fiscal support
as that will likely put upward pressure on inflation.
This article was written by Giuseppe Dellamotta at investinglive.com.