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Japanese Yen Edges Higher, BoJ Rate Statement Next

USD/JPY has edged lower on Tuesday. In the North American session, the pair is trading at 109.43, down 0.23% on the day. On the release front, Existing Home Sales was unexpectedly weak, dropping to 4.99 million and missing the estimate of 5.27 million. The indicator fell short of the 5.0-million threshold for the first time since November 2015. In Japan, BoJ Core Inflation edged lower to 0.4%, shy of the estimate of 0.5%. Later in the day, the Bank of Japan releases a rate statement.

No surprises are expected from the Bank of Japan, which winds up a policy meeting on Tuesday. Policymakers are expected to hold the course and continue the ultra-accommodative policy. The Japanese economy has been showing modest growth, and weak inflation means there is little pressure to raise interest rates. Still, policymakers have major headaches, including the global trade war and further signs that the Chinese economy is slowing down. Japan’s export and manufacturing sectors have weakened, and if the global economy takes a downturn, Japan could be hit with a recession. A negative side effect to prolonged low interest rates is that financial institutions have seen their profits fall, forcing some of them to make questionable loans in order to recoup lost profits. The BoJ has acknowledged the problem, but is unlikely to change course in the near future.

On Monday, the well-respected International Monetary Fund revised downwards its global growth forecast, but raised its forecast for Japan’s economy. With the U.S-China taking its toll on economies around the globe, the IMF’s prognosis should not come as a surprise. In October, the IMF projected growth of 3.7%, but this has now been revised to 3.5%. IMF head Christine Lagarde said that the world’s economy continues to expand, but “it is facing significantly higher risks”. As for Japan, the IMF raised its forecast for 2019 to 1.1%, up from 0.9% in October.

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