Yen gains after weaker than expected announcement by BOJ

Published: 23 Jan at 9 AM Tags: Euro, Dollar,

The yen has risen against the dollar as monetary easing plans announced by the Bank of Japan fell short of analyst’s expectations. New Prime Minister Shinzo Abe has said he wants the central bank to implement drastic measures to bring Japan’s ailing economy out of recession.

Although the announcement was seen by many as disappointing, the bank said it intends to double its inflation target and introduce asset buying in 2014 that will be open ended. Current governor of the BOJ, Masaaki Shirakawa, will see his term end in April and it is widely expected that Prime Minister Shinzo Abe will position someone more willing to implement his extreme measures at the top.

The dollar ended at 88.28 yen, a fall of 0.5 per cent after hitting 90.25 yen on Monday, its highest level against the Japanese currency in over two years. On Friday the euro hit a 20-month high of 120.73 yen, but has since dropped to 117.52 yen.

The yen is likely to weaken over the coming year as pressure is placed on the BOJ to do more to stimulate the economy. According to UBS strategist, Gareth Berry, the inflation target increase is a significant one, but still not enough to tackle the problem.

A benign inflation reading saw the Australian dollar hit $1.0540, a drop of 0.3 per cent. This suggests that Australia’s central bank still has the scope to cut interest rates further.