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YEN UP AGAINST 16 CURRENCIES

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YEN UP AGAINST 16 CURRENCIES

Nov 25 2014, 9.25am GMT

STOCK.com

The yen spurred against 16 currencies as Bank of Japan released minutes of an October meeting and stated that Japan will reach its 2 percent inflation rate.

Meanwhile, the New Zealand dollar fell on the figures from the Reserve Bank stating that inflation expectations down to 2.06 percent from 2.23 percent. The kiwi slipped to 0.7780, almost 1 percent. The Aussie also fell to 0.8525 almost 1 percent as lower May delivery figures pushed iron ore futures down by 2.7 percent on the Dalian Commodity Exchange. These are new lows for the AUD.

Japan’s magic 2 percent rate

As Bank of Japan Governor Haruhiko Kuroda spoke today on Japan's Economy and Monetary Policy at a meeting with Business Leaders in Nagoya, the yen corrected itself after a 7-year low. The BoJ made a surprise announcement to expand monetary stimulus to stay on track for a 2 percent inflation rate.

Kuroda stated, “In Japan we are in the middle of trying to drastically change the deflationary mindset through the QQE, and medium- to long-term inflation expectations have been en route to 2 percent.” He added, “Inflation expectation formation is an essential part of the transmission mechanism of the QQE that the Bank envisages. Namely, the starting point of its effects is to convert people's deflationary mindset and raise their inflation expectations with the Bank showing its strong and clear commitment to achieving the price stability target of 2 percent. At the same time, the Bank tries to lower real interest rates by exerting downward pressure across the entire yield curve through massive purchases of Japanese government bonds (JGBs), thereby stimulating private demand such as business fixed investment, private consumption, and housing investment.”

Referring to the minutes of the October meeting, Kuroda explained, “Based on this line of thought, the Bank decided to expand the QQE at its Monetary Policy Meeting held on October 31. Specifically, the Bank decided upon the following measures. First, it will accelerate the pace of increase in the monetary base by about 10-20 trillion yen, from "an annual pace of about 60-70 trillion yen" to "an annual pace of about 80 trillion yen. Second, the Bank will increase its asset purchases in order to accelerate the pace of increase in the monetary base.”

With these fiscal policies in place, BoJ believes that the 2 percent figure for inflation will be reached and the yen subsequently will gain its place back with strong major peers.

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