The BOJ held rates near zero as was expected. What was surprising was the statements about trying to achieve 2% inflation.
Since Japanese inflation actually dropped to 1.6% from an expected 2.2%, in order to achieve the inflation goal the interest rates will likely remain low for the foreseeable future. The yen will continue to drop and drop as a result …
It’s a bit of a vicious cycle, the BOJ hopes that lower interest rates will stimulate companies and people to spend more. But consumption is actually going down and people are saving more.
I think this experiment of low interest rates and printing money is simply not working in Japan. With almost 40% of the Japanese population over 60 years of age, it’s unlikely that Japanese people will raise their consumption/spending. Older people are more worried about affording their retirement (savings as much as they can) and their families are probably saving as well in case they need to take care of their elderly relatives. This low interest rate policy and the weaker yen is actually hurting a big chunk of the population as their savings get eroded.
Policy to reach a higher inflation rate needs to come from the government and not central bank. Increasing birth rates, immigration, industry competitiveness, tax rates etc… are better tools to get the economy going. If the central bank continues to try to achieve that 2.0% policy, while the rest of the world has much higher rates, we will probably see USDJPY reach 200.
Personally, I have been keeping my savings in dollars and investing abroad…it is hard to see the Yen appreciating any time soon.
by Random_Walk1
