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USD/JPY Fundamental Daily Forecast – BOJ to Hold Policy Steady, but Governor Kuroda Won’t Hesitate to Ease

James Hyerczyk

While not necessarily driving the price action in the Dollar/Yen, there was some news out of Japan the past two days ahead of next week’s Bank of Japan monetary policy and interest rate decisions. Most of the price action lately in the Forex pair has been provided by investor appetite for risk.

At 10:00 GMT, the USD/JPY is trading 110.000, up 0.092 or +0.08%.

BOJ Cuts Economic View on Three Regions, Stays Cautiously Optimistic

The Bank of Japan cut its economic assessment for three of the country’s nine regions on Wednesday but remained cautiously optimistic that domestic demand could help offset a slowdown in exports and manufacturing.

All of the regions kept their assessment on private consumption unchanged, despite fluctuations in spending patterns around the October 1 sales tax hike, likely backing the BOJ’s rosy view that solid demand will offset external headwinds.

The BOJ’s optimism is likely to allow it to justify keeping monetary policy steady for the time being.

“All nine regions reported that their economies were either expanding or recovering,” the central bank said in the regional report. “Domestic demand continued on an uptrend, with a virtuous cycle from income to spending operating in both the corporate and households.”

The downgrades for the northern region of Hokuriku, the central region of Tokai-home to Toyota Motor Corp., and the western area of Chugoku were due to weak exports and output caused by the global slowdown, which has slowed their rate of expansion.

BOJ’s Kuroda Says Won’t Hesitate to Ease Further if Needed

On Wednesday, Governor Haruhiko Kuroda held to the BOJ’s view that the Japanese economy will see moderate growth despite weak exports and output, hit by the global slowdown and natural disasters at home.

Kuroda dropped few hints on what steps the central bank might take next, while repeating his readiness to ease further as needed to achieve the inflation target.

Kuroda also said consumer inflation, which is hovering around 0.5%, would accelerate toward 2%, even though it could be affected for the time being by falling oil prices.

“We will adjust policy as necessary to maintain momentum towards our price stability target while examining risks,” he said. “We will not hesitate to take additional easing steps if risks heighten to an extent that the momentum towards the price target is undermined.”

BOJ to Keep Policy Steady, Raise Growth Outlook as Risks Subside

On Thursday, Reuters reported the Bank of Japan is expected to keep monetary policy steady next week and nudge up its economic growth forecast, as the U.S.-China trade deal and de-escalation in Middle East tensions take some pressure off the central bank for more stimulus.

But BOJ Governor Haruhiko Kuroda will likely voice his resolve to keep monetary policy ultra-loose as the economy continues to feel the strain from the trade war and October’s sales tax hike.

This article was originally posted on FX Empire