The Japanese yen is believed to weaken alongside the British pound today as the markets increasingly expect the Bank of Japan to unveil further monetary stimulus in its policy review next week. BOJ Governor Masaaki Shirakawa used a speech yesterday to reiterate his commitment to uphold ultra-easy policy amid heightened global uncertainty. Meanwhile, the British pound is foreseen to strengthen on improved economic figures.
At a quarterly meeting of the BOJ regional managers, Shirakawa called for vigilance over the impeding effects of financial and currency movements on the economy and on consumer prices as global economic uncertainty remains elevated. The central bank also released a quarterly report evaluating the regional sectors of the economy, and the findings suggest that the bank foresees economic growth to stall for the near future. In the report, the BOJ downgraded its assessment of eight of the nation’s nine regional economies, in a sign that the territorial spat with China and slowing global demand are hampering the outlook for the export-reliant economy. The report marked the largest number of downgrades since January 2009, when the central bank cut its assessment for all nine regions. As such, Shirakawa reiterated that the BOJ remains steadfast in pursuing easy policy via a steady purchase of assets.
Sources familiar with the central bank say that policymakers are leaning toward a further 10 Trillion Yen increase in asset purchases which would mostly come in the form of government bond-buying, and could include a small rise in purchases of exchange-traded funds and real estate investment trusts. Likewise, the central bank is widely believed to officially slash its growth estimates and push further back the timing of hitting its 1 percent inflation target. Yesterday, the markets received an ominous reminder of the struggling Japanese economy in the face of global threats and easing domestic demand. Exports dropped by the most since May last year, with shipments plunging by 10.3 percent in September from a year earlier. Exports to China, Japan’s largest export market, fell 14.1 percent while shipments to the debt-plagued European Union dropped 21.1 percent. Meanwhile, business investment hit its lowest level since 2010 as the ongoing island dispute with China weigh.
In contrast, outlook seems to be looking slightly up for the British economy as the recession is tipped to have ended in the September quarter, with estimates calling for a 0.6 percent expansion in Q3. A report last week revealed that Retail Sales bounced back in September, while today, the BBA Mortgage Approvals is set to rise to highest level in four months also in September. Considering these, a long position is advised for the GBP/JPY trades today.
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