© Shutterstock Should you buy or sell the JPY amid the appointment of a new BOJ governor?
Invezz.com – The forex market was not particularly volatile in 2023. For example, if one looks at the exchange rate, it is only a couple hundred pips higher than the levels at the beginning of the year. The same is true of other pairs, including the Japanese yen, known for its higher volatility.
One of the reasons for this is the transition to the helm of the Bank of Japan (BOJ). A new governor, Kazuo Ueda, is in charge of monetary policy.
Before his appointment, there was speculation that the BOJ would end the easy monetary policy. After all, it differs from all major central banks by maintaining its yield curve control program while other central banks tighten their policies.
But instead of pointing out what the speculators believed, Ueda did the opposite. He reiterated the 25-year challenge faced by the BOJ to achieve price stability.
He also said that negative rates are here to stay. Furthermore, he praised the policies of his predecessor. Haruhiko Kuroda led the BOJ for years and took monetary policy where no other central bank had gone before.
Chronic savings glut puts pressure on the yen
The yen took a beating recently as the new central bank chief wants to keep rates negative and encourage a weaker currency. Thirty years of similar policies do not seem to shake the BOJ’s determination to achieve price stability.
One could not help but wonder why the BOJ goes to such extremes in its monetary policy. The answer is chronic oversaving.
Private saving in Japan is exceptionally high, around 29% of GDP between 2010 and 2019. Reaching inflation levels commensurate with price stability has therefore been challenging, as the money was simply not spent.
Unless and until that changes, excess savings will put pressure on the Japanese Yen as the BOJ moves to counter the adverse effects of excess savings. This means a weaker currency, so the yen is likely to remain under pressure despite the change in Governor.
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