Expectations that the Bank of Japan would commit to aggressive monetary policy at the end of its two-day meeting tomorrow are foreseen to continue weighing on the Yen today. Seemingly confirming market talk over the past few days, sources reveal that the Japanese government and the BOJ were getting closer to an agreement on a joint statement to combat deflation. Meanwhile, the Australian dollar is deemed to be buoyed by more upbeat expectations for the Chinese economy this year.
The Bank of Japan is widely expected to produce a further expansion of its asset-purchasing program, along with some adjustments to its terms, to help lift the struggling economy out of its third recession in the past five years. A possible 10 Trillion Yen in additional easing would be the first time in more than nine years that the central bank expanded monetary policy at two consecutive meetings. More significantly, the meeting is believed to result in a policy pact between the central bank and Prime Minister Shinzo Abe’s government to overcome deflation that has dogged Japan for much of the past two decades.
The central bank has been under intense pressure recently to adopt a 2 percent inflation target and make job creation part of its monetary policy mandate. Japanese Economics Minster Akira Amari said over the weekend the both sides are getting closer to an agreement on a joint statement on monetary policy due to be released tomorrow. Sources say that both sides have agreed to set 2 percent inflation as a new target and consider making an open-ended commitment to purchase assets until the target is in sight. While no deadline is expected to be set, the bank aims to achieve the target in the “medium term,” sources added. With the BOJ anticipated to unveil more aggressive measures tomorrow, the Yen is deemed to sustain its declines.
Meanwhile, reports showing the Chinese economy picked up steam during Q4 of 2012 are seen to benefit the Australian dollar to begin the week. China’s Gross Domestic Product expanded 7.9 percent during the December quarter, slightly better than expectations and significantly above the 7.4 percent pace recorded in Q3. Separate data for December also came in better than estimated. Retail Sales grew 15.2 percent from a year earlier while industrial output rose 10.3 percent as compared to a 10.2 percent expected increase. Auguring still better times ahead, the Bank of Communications projects that the world’s second largest economy will grow 8.5 percent this year, with domestic demand being the driving force for expansion. Considering these, a long position is advised for the AUD/JPY trades today.
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