AUD/JPY: BOJ Governor Shirakawa Asserts Easing Pledge

The Japanese yen is seen to remain lower opposite the Australian dollar today after Bank of Japan Governor Masaaki Shirakawa said the central bank will continue with powerful easing as the economy is likely to remain weak. Meanwhile, risk-on trades are presumed to continue lifting the Aussie as a rather dovish rhetoric from US Federal Reserve Chairman Ben Bernanke over the US economy has seemingly reinforced views that quantitative easing will be maintained this year.

Speaking at a gathering of BOJ branch managers earlier today, Shirakawa expressed that the nation’s economy remains weak as exports and production are decreasing as the global slowdown continues, adding that the bank will pursue “powerful monetary easing.” Although Shirakawa stuck to his view that the economy will eventually resume a moderate recovery as overseas growth gradually emerges from a slowdown, he warned that the outlook remained highly uncertain. He pointed to deteriorating business sentiment and capital expenditure as clear signs of declining exports and output.

The BOJ has been under intense pressure from Prime Minister Shinzo Abe to take bolder action to beat deflation, and sources say the bank will likely respond in its meeting next week. The BOJ, which eased policy five times in 2012, is widely expected to consider expanding stimulus again and double its inflation target to 2 percent. Considering these views, the Yen is apt to decline further.

Over to the US, Fed Chairman Bernanke delivered a shot in the arm to the markets as he said he still was not satisfied with the economy’s progress, despite recent signs of improvement, indicating that he plans to stick with unconventional programs the central bank is using to buoy output. Speaking at the University of Michigan, Bernanke stressed that the economy still has a long way to go. The Fed said that continuing programs such as an $85 Billion monthly bond-buying effort hinges on progress in the labor market. Likewise, he also noted that Congress has not yet resolved the $109 Billion in spending cuts slated to take effect this year, a possible government shutdown and a likely battle over raising the debt ceiling. On views that the Fed is apt to maintain easing, the Aussie is deemed to rise, warranting a long position today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.