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BANK OF JAPAN AND US FEDERAL RESERVE POLICY DIVERGENCE CAUSED IMBALANCE IN USD/JPY PAIR

Harvest Global Markets :

The Japanese economy is currently considered a global outlier for continuing the ultra-low levels of interest rates at -0.1% as announced on Thursday by the Bank of Japan (BOJ). Whereas, alternatively the central banks worldwide are putting meaningful downward pressures to slow down the soaring inflation by aggressively increasing the interest rates. This is in accordance with the global economies mandate to control the inflation triggered by the supply shocks due to unprecedented circumstances in the global economy. There is an immense policy divergence between the US Federal Reserve and Bank of Japan (BOJ), impacting the price movement in the USD/JPY currency pair.

The Japanese economy has been struggling from post-covid recovery, and finding it difficult to sustain its industrial growth. The increase in the commodity prices and energy costs, has slowed the Japanese economy and hence the policy makers in Japan have been implementing expansionary monetary policy from last couple of years to revive and boost economy. The Bank of Japan has stayed adamant on easing its monetary policy as its economy continues to recover from the pandemic retrenchments as it has been easing its monetary policy and continuously countering the deflation threat posed to the world’s third largest economy.

Their approach to stimulate the economy, increasing consumer spending and controlling the long-term deflation by making the Japanese Yen weaker isn’t giving anticipated results. It is rather making it more vulnerable in the international trade. The downfall of the Japanese Yen has led to the commodity prices being high, coupled with soaring energy costs and severe trade deficit.

The Japanese Yen is seen to observe sharp fallings against the US Dollar and even though it looks forward to build its geo-political and economic ties with the United States to ensure its economic security which seems to be threatened by the Chinese domination in the Asian Markets.

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