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Yen Rises Against Dollar Following BoJ Decision to Keep Monetary Policy Unchanged

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The Bank of Japan kept its monetary policy unchanged on Wednesday at its April 8 meeting. At the end of the two-day meeting, policymakers voted 8-1 to continue to increase the monetary base by 80 trillion yen a year through purchases of government bonds, a quantitative easing (QE) program that was launched two years ago in April 2013 and was upwardly revised in October of 2014. The no-change decision was widely expected, although an increase in asset purchases by the Bank later in the year is not being discounted if core consumer inflation continues to fall.

In its Monetary Policy statement the Bank of Japan said that the Japanese economy is recovering moderately as exports have been picking up, business fixed investment has been improving, private consumption has remained resilient against the background of steady improvement in the employment and income situation, and housing investment has recently started to bottom out. Against the backdrop of these developments in demand both at home and abroad, industrial production has been picking up, due in part to the progress in inventory adjustments.

In support of the improving economic sentiment, the Eco Watchers Survey Index rose more than expected to 52.2 in March, against a forecast of 50.5 and up from 50.1 in the previous month. Any value above 50.0 indicates optimism.

On the inflation outlook, the year-on-year rate of increase in CPI is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices, and the Bank maintains its target if achieving 2% inflation. Some analysts are doubtful however, if the 2% target is achievable given weak oil prices and flat consumer prices.

In the currency markets, the news sent the dollar lower against the yen from near three-week highs of around 120.30 yen earlier in the day to close at 119.84 yen. The yen also rose against the Australian dollar and the Pound but was only marginally higher against the euro, which dropped briefly below the 130 yen mark.

Shares were also given a boost as investors were encouraged by the possibility of further monetary easing and Japan’s Nikkei closed the day up 0.76% at 19.789.81, pushing it to a 15-year high.

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