As the Federal Reserve and the Bank of England raise interest rates and the European Central Bank is likely to decide on a hike later this year, the Bank of Japan seems to be going against global trends and leaving its financial policy unchanged.
As a result of the divergence in the approach to interest rates, the yen remains at its lowest level in 6 years against the USD. The Japanese currency slid towards JPY 119 per dollar on Friday. It had previously fallen for two weeks in a row to its lowest level since January 2016.
Bank of Japan sees more risks
This may have been influenced by the Bank of Japan, which maintained its massive stimulus and warned of growing risks to the fragile economic recovery caused by Russia's assault on Ukraine, strengthening its belief that it will remain dovish despite the global shift towards monetary tightening.
Although Japan's inflation rate may approach or even exceed its 2 percent target in the coming months, the bank is reluctant to withdraw stimulus. Indeed, it sees the recent rise in energy prices as a potential threat to an economy that has only just recovered from a coronavirus pandemic. This stance contrasted sharply with other major central banks that are beginning to tighten monetary policy. Suffice it to recall that the Federal Reserve raised interest rates on Wednesday for the first time since 2018 and outlined a plan for further increases, which could positively impact the US dollar.
Oil prices say war doesn't end
In the oil market, Brent crude futures rose above $107 a barrel on Friday, extending an 8.8 percent gain in the previous session. It was the biggest rise in 16 months and may have been linked to the fact that truce negotiations between Russia and Ukraine are failing to produce results, raising fears of further sanctions and prolonged disruptions to oil supplies.
A Kremlin spokesman, moreover, denied reports of significant progress in peace talks, and U.S. President Joe Biden called Russian President Vladimir Putin a "war criminal" - all of which have increased fears that the conflict will drag on. A warning from the International Energy Agency (IEA) of a potential supply shortage as a result of sanctions on Russian oil may also have pushed crude prices up further.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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