USD/JPY – The Yen Rises and Nikkei Moves Lower

USD/JPY (123.341)

Talking points to consider:

• The Bank of Japan (BOJ) made no changes to its monetary growth target which is at ¥80 trillion.
• The USD/JPY gains in value while the Nikkei falls on increased risk aversion thanks to the BOJ.

The USD/JPY Forex market moved higher while the Nikkei 225 benchmark bourse moved lower after the BOJ kept its monetary growth target steady at ¥80 trillion. This move was expected. The bank said it will continue its quantitative easing until inflation stabilizes at two percent. First, they need to reach two percent inflation growth.

In its press release, within the International Business Times, the BOJ noted that recent economic data notes weakness in inflation. However, the BOJ policy makers are still confident that its current QE program will have the desired effects and bring about a rise in the headline core produce index (CPI). For now, it would seem that the CPI will continue to fluctuate around zero percent for the next quarter into 2016.

Earlier this week, the world’s third largest economy, fell back into a recession after its gross domestic product (GDP) contracted for a third quarter in a row. This was for the three months in September (third quarter or Q3). Keeping this in mind, it should not be shocking that the Dollar gained against the yen and the Japanese stock market fell lower. This is being fueled by risk aversion and investor disappointment with the BOJ not adding more QE to fuel the markets. As long as the BOJ sits back and does nothing to stimulate expansion, risk aversion will remain high as investors look to move money out of the yen into the US Dollar. Investors also feel that Japanese equities are not attractive with the lack of economic growth as well as the lack of inflation. Until the BOJ acts, these markets will remain bumpy.