Thursday March 9, 2006 - 10:51:59 GMT
Share This Story
INVESTICA Ltd - www.investica.co.uk
End of an era in Japan
The yen held just stronger than 118.0 against the dollar ahead of the Bank of Japan policy announcement and, after temporary losses to 118.25, the yen strengthened to 117.25 in Europe on Thursday.
Following its monetary meeting, the central bank announced that it would end the quantative monetary policy after five years and switch to a environment of interest rate targets. The bank has also set a 0-2% reference target for the inflation rate. It will probably take several months for excess liquidity to be withdrawn from the system which will keep interest rates low and the bank has also pledged to keep interest rates close to zero over the next few months.
The commitment to low interest rates will reinforce the yen's lack of yield support and this will maintain the temptation to sell the yen on yield grounds, but the policy shift will still have important medium-term implications. A reduction in market liquidity will gradually tighten liquidity conditions and should lessen the potential for aggressive yen selling.
There will also still be capital repatriation back to Japan on seasonal grounds before the end of March and there will also be continuing pressure for a reduction in carry trades which will maintain a flow of funds into the yen. In this environment, the yen should be able to resist substantial losses, especially if there is are further stresses in emerging markets, as there will be greater caution over pushing funds overseas.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."