Forex News
- GBP/USD flatlines near 1.3445 in Tuesday’s early Asian session.
- Traders see 84.0% odds of a Fed hike in December.
- BoE’s Bailey says upside inflation risks remain a concern.
The GBP/USD pair holds steady around 1.3445 during the early Asian trading hours on Tuesday. Traders prefer to wait on the sidelines ahead of US Consumer Price Index (CPI) inflation data later in the day. Also, Bank of England (BoE) policymaker Sarah Breeden is set to speak.
Stronger-than-expected US Nonfarm Payrolls (NFP) data have reinforced expectations that the US Federal Reserve (Fed) could keep interest rates higher for longer. This, in turn, could lift the Greenback in the near term.
Markets are now pricing in nearly an 84.0% chance that the Fed will raise rates in December, up from 72.8% before the US jobs report, according to the CME FedWatch tool.
The US CPI inflation report will take center stage later on Tuesday. The headline CPI is expected to show a rise of 0.3% MoM in October. The core CPI, which excludes volatile food and energy costs, is forecast to show an increase of 0.2%.
The report will not include an annual reading for October CPI because of the government shutdown a year ago, which prevented the BLS from collecting some data and compiling a full index level.
Last week, the BoE lifted its benchmark interest rate by 25 basis points (bps) to 4.00%, marking its first rate increase in over three years. BoE Governor Andrew Bailey emphasized the war in the Middle East, which is pushing up energy prices, as the main factor in deciding future rates. Markets price in three more hikes by the end of next year, more than most economists expect.
UK rates steady as markets eye Bailey and key 3 data
Strategists at Societe Generale note that the UK rates market has opened on a stable footing, with the "10y IRS opens unchanged at 4.70% after holding 4.69% (100dma) last week." They identify "support 4.58%, resistance 4.78%," framing the immediate technical range as investors await policy signals. The bank highlights that Governor Bailey "speaks in Zurich later today, first intervention since the MPC rate increase week," a appearance that could help shape expectations around the BoE’s reaction function.
On the data front, Societe Generale flags that "prel 3Q GDP on Thursday" will be a key domestic highlight, with the bank’s own "SG forecast 0.7% qoq." More broadly, they describe a busy global calendar in the "week ahead," pointing to "US CPI, PPI, Fed speak incl Waller and Williams. EU 3Q GDP second read. UK prel 3Q GDP. China trade balance. CPI for Mexico, Norway, Czech Republic, Hungary, India," underscoring the dense run of releases that could influence global rate and FX markets.
BoE’s pill opens door to 2026 rate cuts as outlook uncertainty rises
Pill’s latest remarks score 4.2/10 on FXS Speechtracker, notably below the historic 6.4/10 baseline, signalling a softer and less conviction-driven tone. By stressing that “nothing is baked in” for next year and that there is “no preset upward path” for rates from spring, the speech marks a dovish shift versus past guidance that leaned more firmly toward keeping policy restrictive.
The explicit acknowledgement that Bank Rate could stay on hold or even fall if growth stalls, and that the key determinant will be margin squeeze on companies, reinforces a data-dependent and growth-sensitive stance. For GBP, this combination of heightened uncertainty and openness to cuts tilts risks toward a weaker path, as markets are encouraged to price out a sustained tightening bias and to focus instead on downside growth scenarios.
Technical Analysis: GBP/USD keeps a bullish vibe above the 100-day SMA
In the daily chart, GBP/USD maintains a modest bullish bias as spot holds above the 100-day simple moving average (SMA) and the Bollinger middle band, suggesting underlying demand on shallow pullbacks. The Relative Strength Index (RSI) at roughly 57 stays in positive territory, hinting that upside momentum remains constructive while price consolidates just below the upper Bollinger band.
On the topside, immediate resistance emerges at the upper Bollinger band near 1.3500, and a clear break above this ceiling would open the way for a stronger advance. On the downside, initial support is seen at the 100-day SMA around 1.3400, followed by the Bollinger midline near 1.3370, while the lower band around 1.3238 marks a deeper support zone if the current bullish structure were to unwind.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- USD/CAD gains ground as commodity-linked Canadian Dollar (CAD) struggles amid lower oil prices.
- The US Dollar gains despite growing speculation of a potential US-Iran deal.
- President Trump said that further strikes on Iran might not be necessary while keeping the US "locked and loaded."
USD/CAD inches higher after posting minor losses the previous day, trading around 1.4120 during Asian hours on Tuesday. The pair gains support as commodity-linked Canadian Dollar (CAD) faces challenges amid lower oil prices.
Crude oil prices have fallen to their lowest levels since August amid optimism over diplomatic efforts to end the conflict in the Middle East. Although regional attacks continue, US President Donald Trump indicated that further strikes on Iran might not be necessary while keeping the US "locked and loaded." Trump noted positive momentum toward ending the war, stating that Iran is "militarily, effectively over" and that the current status quo is being maintained largely at the request of neighboring nations.
The USD/CAD pair also appreciates as the US Dollar (USD) gains ground despite growing speculation of a potential deal between Washington and Tehran. Traders remain focused on the upcoming United States (US) Consumer Price Index (CPI) data.
US Headline CPI is expected to rise to 3.9% year-over-year from 3.7% in October, while core CPI is forecast to tick up to 2.8% from 2.6%. Following last week's Nonfarm Payrolls report, expectations for a Federal Reserve interest rate hike at the December meeting have strengthened, with the CME FedWatch Tool putting the odds at 84%, up from 76% a day ago.
Richmond Fed President Thomas Barkin highlighted inflation risks within the central bank's mandate, and Chicago Fed President Austan Goolsbee pointed out that accelerating services inflation complicates the idea that high prices are driven solely by tariffs.
Dollar support persists as Fed bias stays hawkish
Strategists at Brown Brothers Harriman observe that the Dollar has retraced part of its recent advance, noting that “USD pared back some of Friday’s strong October non-farm payrolls gains.” However, they stress that the broader backdrop remains constructive for the greenback, as “robust US economic activity, favorable labor market conditions and sticky underlying inflation back the Fed’s hawkish bias, keeping rate differentials supportive of USD.”
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
- USD/JPY gains some positive traction as dismal domestic data undermines the JPY.
- The geopolitical uncertainty and Fed hike bets revive USD demand and lend support.
- A hawkish BoJ limits JPY losses as traders now look to the US CPI for a fresh impetus.
The USD/JPY pair attracts some dip-buyers during the Asian session on Tuesday, climbing back above the 158.00 mark and reversing a part of the previous day's losses. Spot prices, however, remain confined within a familiar range held since early October, warranting caution before placing aggressive directional bets.
The Japanese Yen (JPY) weakens in reaction to dismal domestic data, which complicates the Bank of Japan's (BoJ) plans for further interest rate hikes. In fact, the Internal Affairs Ministry reported that Japan's Household Spending fell 6.8% from a year earlier in September, marking the 10th consecutive monthly decline and the sharpest drop since September 2020. Apart from this, a modest US Dollar (USD) uptick turns out to be another factor offering some support to the USD/JPY pair.
US President Donald Trump said that there is positive momentum towards ending the war on Iran, and that a resumption of strikes is quite unlikely, declaring the conflict effectively over. However, Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, dismissed reports of active negotiations as fake news and reiterated that Washington must accept Tehran's seven conditions to end the conflict. This keeps the geopolitical risk premium in play and supports the safe-haven USD.
Furthermore, the CME Group's FedWatch Tool indicates that traders are still pricing in over an 80% chance that the US Federal Reserve (Fed) will raise borrowing costs again in December. This offers additional support to the Greenback as traders now look to the latest US consumer inflation figures for more cues about the Fed's policy path and a fresh impetus. In the meantime, hawkish BoJ bets, along with intervention risks, could limit JPY losses and cap the upside for the USD/JPY pair.
In fact, the Summary of Opinions from the BoJ's October monetary policy meeting revealed that some policymakers called for speeding up the pace of interest rate hikes as underlying inflation reached the central bank's 2% target. This, in turn, makes it prudent to wait for some follow-through buying and sustained strength above mid-158.00s before placing aggressive bullish bets on the USD/JPY pair. On the flip side, weakness below the 157.50 area is needed to back the case for deeper losses.
USD/JPY daily chart
Technical Analysis
The USD/JPY pair keeps a capped tone below the 100-day Simple Moving Average (SMA) at 159.02. Moreover, spot prices remain confined in a range, suggesting rallies remain vulnerable to selling pressure, with the broader structure pointing to a still-corrective phase while price stays under that barrier. On the topside, the 100-day SMA at 159.02 is the first meaningful resistance and needs to be decisively overcome to ease the current bearish bias and open the way to a more sustained recovery.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
Overall Household Spending (YoY)
The Overall Household Spending released by the Ministry of Internal Affairs and Communications is an indicator that measures the total expenditure by households. The level of spending can be used as an indicator of consumer optimism. It is also considered as a measure of economic growth. A high reading is positive (or Bullish) for the JPY, while a low reading is negative (or bearish).
Read more.Last release: Mon Nov 09, 2026 23:30
Frequency: Monthly
Actual: -6.7%
Consensus: -3.1%
Previous: -3.1%
Source: Ministry of Economy, Trade and Industry of Japan
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Tuesday at 6.7167 compared to the previous day's fix of 6.7188 and 6.6655 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- EUR/USD falls as the US Dollar gains despite growing speculation of a potential US-Iran deal.
- Falling crude oil prices and stabilizing markets could offer underlying support for the Euro.
- The Euro faces headwinds from French political instability and uncertainty over ECB leadership.
EUR/USD inches lower after registering modest gains in the previous day, trading around 1.1220 during Asian hours on Tuesday. The US Dollar (USD) is gaining ground despite growing speculation of a potential deal between Washington and Tehran, while traders remain focused on the upcoming United States (US) Consumer Price Index (CPI) data.
Meanwhile, crude oil prices have fallen to their lowest levels since August amid optimism over diplomatic efforts to end the conflict in the Middle East. Although regional attacks continue, US President Donald Trump indicated that further strikes on Iran might not be necessary while keeping the US "locked and loaded." Trump noted positive momentum toward ending the war, stating that Iran is "militarily, effectively over" and that the current status quo is being maintained largely at the request of neighboring nations.
On the economic front, market attention centers on the release of October’s US CPI data on Tuesday. Headline CPI is expected to rise to 3.9% year-over-year from 3.7%, while core CPI is forecast to tick up to 2.8% from 2.6%. Following last week's Nonfarm Payrolls report, expectations for a Federal Reserve interest rate hike at the December meeting have strengthened, with the CME FedWatch Tool putting the odds at 82%, up from 76% last Friday.
Recent comments from Fed officials lean hawkish, as Richmond Fed President Thomas Barkin highlighted inflation risks within the central bank's mandate, and Chicago Fed President Austan Goolsbee pointed out that accelerating services inflation complicates the idea that high prices are driven solely by tariffs.
Meanwhile, the EUR/USD pair is losing ground as the Euro (EUR) faces headwinds from ongoing political and fiscal instability in France, as well as uncertainty regarding reports of ECB President Christine Lagarde's potential early departure. Nevertheless, lower oil prices and stabilizing market sentiment following last week's turbulence could offer the Euro some underlying support moving forward.
Markets brace for aftershocks of US course correction and tech rout
Strategists at Societe Generale suggest that global markets are now attempting to steady themselves after what they describe, echoing historian Simon Schama in the Weekend FT, as “the mother of all US course corrections.” They note that the “$3.2tn Tech carnage” has rattled sentiment and “spooked investors to rush for the safety of government bonds, the Swissie and the dollar,” setting the tone for trading as participants reassess risk appetite and safe-haven demand.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- Gold price drifts lower to around $4,125 in Tuesday’s early Asian session.
- Markets price in an 84% chance of a Fed rate hike in December.
- Trump says further airstrikes on Iran won’t be necessary.
Gold price (XAU/USD) loses ground to near $4,125 during the early Asian trading hours on Tuesday. Rising bets of further US interest rate hikes following a stronger-than-expected US Nonfarm Payrolls (NFP) report weigh on the precious metal. Traders will closely monitor the developments surrounding the US-Iran peace deal to end the war for fresh impetus.
The upbeat US jobs data released last week has reinforced expectations that the Federal Reserve (Fed) could keep interest rates higher for longer. The US economy added 165,000 jobs in October, compared to 60,000 recorded in September, beating estimates.
Meanwhile, the unemployment rate fell to 4.1% in October. Higher interest rates increase the opportunity cost of holding non-yielding gold, making gold less attractive to investors.
Traders currently see around an 84.0% probability that the Fed will raise rates in December, compared with 72.8% before the US jobs report, according to the CME FedWatch tool.
On the other hand, falling crude oil prices could ease inflation concerns and help limit the yellow metal’s losses. Oil dropped sharply after US President Donald Trump downplayed the likelihood of renewed strikes on Iran, though attacks on ships near the Strait of Hormuz kept supply concerns in focus.
Gold shines as risk-off tone weighs on equities and yields
Analysts at Deutsche Bank observe that credit markets were “fairly flat on both sides of the Atlantic,” but note that the “risk-off tone in equities meant it was a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August.” They add that “along with the risk-off tone from the AI selloff,” this shift in sentiment “helped to bring down sovereign bond yields around the world.” Even so, Deutsche Bank points out that “the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type,” underscoring how the defensive bid for gold has emerged against a backdrop of mixed moves across other major asset classes.
Technical Analysis: Gold remains capped under the 100-day SMA
In the daily chart, XAU/USD remains capped in the near term, with spot holding below the 100-day Simple Moving Average (SMA) while still trading above the 20-day Bollinger middle band support. This configuration suggests a corrective bounce within a broader consolidation, as the Relative Strength Index (RSI) around 52 points to only modest positive momentum rather than a decisive bullish breakout.
On the topside, initial resistance is seen at the 100-day SMA around $4,200, with a stronger barrier at the upper Bollinger band near $4,225; a daily close above this cluster would be needed to reopen the path toward higher highs. On the downside, immediate support is provided by the Bollinger middle band at approximately $4,065, ahead of the lower Bollinger band near $3,900, where a break would expose a deeper corrective phase toward earlier cycle lows.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
The Bank of Japan (BoJ) published the Summary of Opinions from the October monetary policy meeting, with the key findings noted below.
Key quotes
One member said maintaining policy is suitable to assess risks around economy, prices a bit more.
One member notes some economic weakness, urges careful monitoring of economic and price outlook.
One member says appropriate to continue raising rates as underlying inflation nears price target levels.
One member said central bank should raise rates when feasible without excessive caution.
One member said Japan entering new phase requiring faster rate hikes toward neutral levels.
One member said underlying inflation has hit 2%, BoJ must raise policy rate to neutral level soon.
One member said BOJ must observe financial conditions for several months after each rate increase in adjusting monetary easing.
One member said central bank must move policy rate to neutral early for flexible response in hikes and cuts.
One member said must watch risk future rate hike will weigh on economy, push down inflation.
One member says Japan’s neutral rate likely well above 1%.
One member said next rate increase unlikely to significantly hurt economy on net basis.
One member said outcome of next year's annual pay talks warrants attention.
One member said wage growth for next year unlikely to rise much from this year, risk of second-round effects low.
Market reaction
At press time, the USD/JPY pair trades 0.12% higher at around 158.07.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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