USD/JPY: Yen Under Pressure as BOJ Minutes Discuss Further Easing Options

The Japanese yen is deemed to maintain its decline opposite the Australian dollar today after minutes of the Bank of Japan’s rate review revealed additional options for expanding stimulus further. Likewise, Japanese Prime Minister Shinzo Abe ramped up the pressure on the BOJ yesterday, urging it to adopt further measures to reach the 2 percent inflation target.

The minutes of the BOJ’s policy meeting released earlier today showed policymakers discussed buying longer-dated government bonds as a policy option, indicating that such a move could their preferred next step in expanding stimulus. Under its asset-buying scheme, the BOJ buys government bonds with up to three years until maturity to pump money into the economy. However, a few members of the nine-member board said an option could be to extend the duration to around five years, a move that would help push down the longer end of the yield curve. At the January 21-22 meeting, the BOJ doubled its inflation target to 2 percent and made an open-ended pledge to buy assets from next year. One board member suggested beginning open-ended bond purchases immediately, but did not formally propose it.

Meanwhile, Prime Minister Shinzo Abe continues to ramp up pressure on the BOJ to commit to its pledges. Speaking to parliament, Abe said a failure to hit its recently established 2 percent inflation goal would be a condition for changing the law governing the central bank. In what was described as a heated debate, Abe remarked that it would be necessary to proceed with revising the BOJ law if it cannot produce results under its own mandate. He also acknowledged calls for foreign bond purchases as well as for purchases aimed directly at boosting the stock market. Although he opted not to comment on such proposals, he stressed that the BOJ should take effective policy steps that would contribute to overcoming deflation.

Market attention is now likely on Abe’s pick for the next BOJ chief, which is expected to be announced in as early as this week. According to sources, former top financial bureaucrat Toshiro Muto is the leading candidate to become the BOJ’s next governor. The potential choice of Muto, analysts say, would suggest that the central bank will intensify stimulus efforts to revive the economy. Muto has previously stated that the BOJ has room to boost government bond purchases to pump more money into the economy. Considering these expectations, a long position is advised for the USD/JPY trades today.

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