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The Japanese economy improves but the situation is still in a lurch

29 Mar 2021 12:28 PM

The Bank of Japan released its “Opinions Summary” during its monetary policy meeting today, and the report showed that the decisions made at this month's central bank meeting will strengthen the extreme easing policy towards achieving the 2% inflation target. The report indicated that the economy is "in a recovery trend”, but is still in a critical condition due to the coronavirus crisis.

During the March meeting, the Bank of Japan decided to take a set of steps to make its policy tools sustainable enough to face a protracted battle to cushion the economic blow from the coronavirus, pushing inflation to its target. The central bank was optimistic, indicating improvement in the economic outlook, and expects a gradual recovery. However, it stressed that doubts regarding the spread of newly discovered strains of the coronavirus remained high, as well as concerns about the spike in US Treasury yields.

Policymakers’ opinions reinforce the market view that the Bank of Japan will keep monetary policy unchanged for the time being, in hopes that the recovery in global demand will support the export-dependent Japanese economy.

The Japanese yen rose slightly against the US dollar at the beginning of the week's trading, but is still trading near its lowest level since June 2020, as the USDJPY stabilized around 109.55. The resistance at 109.80 will be pivotal for determining the direction of the pair during the coming period. Breaching this level will open the door for a further rise towards 111.00, while failure to do so could put the pair under selling pressure and slide back down to 108.00.

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