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Japan: Monetary policy of Central Bank will be stimulative for a long period
Тoday early in the morning Bank of Japan left its rate unchanged in the range of 0-0.1%. In comments to this decision central bank noted that economy recovery in Japan is slowing. From the one hand, there is growth of housing investment. From the other hand, export of goods and services from country is very feeble. Due to the insufficient home and abroad demand production is showing decline. Core CPI is decreasing thanks to economy slack, but the paces of decline are dampening. Inflation in Japan in 2011 fiscal year is expected to accelerate and reach higher level than predicted earlier in the light of high commodity prices.
The Bank's baseline scenario implies gradual Japan economy way out on the stable growth rates owing to the improvement of global economy leading by developing and commodity exporting countries. Nonetheless there are definite risks: uncertainty about economic growth in the USA and Eurozone, and probable swings on the financial markets.
Bank of Japan is continuing to stimulate its economy flowing money within the limits of program at a amount of 35 trillion yens.
Majority of Policy Board Members on this meeting reduced its GDP forecast for 2011 fiscal year from 1.8% to 1.6%, but at the same time increased its inflation prediction from +0.1% to +0.3%.
Currency pair USD/JPY almostly did not pay attention to this news. We consider this event as neutral for yen in the short run and still think that due the slower growth paces of Japan economy in comparison to USA and gradual increase in purchases of risk assets, especially in the second part of 2011, pair USD/JPY in the medium term will be looking forward to the level of 90.00.