Overview of Japan’s Economy and Monetary Policy

Overview of Japan’s Economy and Monetary Policy

2021-10-04 • Updated

Bank of Japan Governor Kuroda says Japan's economy will continue to recover and may reach the pre-pandemic level at the end of this year or early next year. But less than a week ago we heard a lot of opposite statements from him. What is happening with Japan’s economy and are the dark times beginning for JPY? It’s time to find out!

Pandemic hit hard

A year and a half ago, in 2020, when the first state of emergency was declared, the real GDP of Japan fell by about 10% compared with the level before the pandemic, and a wide range of economic activities were negatively affected. Since that Japanese economy tried to recover – in the next six months after the start of the pandemic real GDP has regained more than 60% of initial loss – but after that, the pace of the recovery has gradually slowed down. Even now economic activity in Japan is under pre-pandemic levels, with no signs of improvement.

imgonline-com-ua-Resize-dnxodvvMryBnh.jpg

Even if we look at more positive data (PMI, exports, and production), Japan is struggling to reach the success of Europe and the United States. Asian factory shutdowns caused by the pandemic are likely temporary and could be fixed in the coming months, but capital expenditures are increasing in corporate sector.

imgonline-com-ua-Resize-cP4QsI6hTG.jpg

The future of Japan’s policy

The slow pace of the recovery is the reason for BOJ to hold the interest rate on the current level and to take more actions in response to Covid-19. For example, purchases of commercial papers and corporate bonds will be set at about 20 trillion yen ($180 billion), at maximum (the previous amount was about 5 trillion yen ($45 billion)). The BOJ extended the duration of the support program until the end of March 2022. Kuroda said that Japan's economy will continue to recover and could reach levels seen before the coronavirus pandemic by the end of this year or early in 2022.

With consumption weak and inflation well below its 2% target, however, the BOJ will maintain its massive stimulus regardless of the new government's policies. Also, to achieve and maintain target inflation, the BOJ guides short-term interest rates to -0.1% and long-term rates to around zero. That is pressing on the yen even more.

From the technical side, there is nothing to worry about: the downtrend of JPY isn’t going to stop any time soon. USD is feeling great and now is rushing through half a year consolidation. With or without some pullback, the yen will fall.

USD/JPY daily chart

Resistance: 112.2; 113.2; 116.2

Support: 111.7; 111.0

USDJPYDaily.png

LOG IN

Similar

Euro May Start a Rally
Euro May Start a Rally

On October 28 European Central Bank held a press conference. Inflation has hit Europe and now the time has come for more profound steps in the fight with the post-pandemic economy. What should we know to trade these events?

Latest news

Deposit with your local payment systems

Be on top of your game

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera