BoJ's Takata - BOJ is currently only pausing its policy rate hike cycle ...Middle East

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Economic Activity, Prices, and Monetary Policy in Japan

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BOJ should continue to further adjust degree of monetary accommodation if it can confirm that positive corporate behaviour is being maintainedBut with likelihood of slowdown in U.S. economy due to tariffs, careful monitoring needed on risk that divergence in U.S.-Japan monetary policy stance could bring about high market volatility, particularly in FX marketsU.S. economy is unlikely to see a serious recessionBOJ is currently only pausing its policy rate hike cycle, should continue to make ‘gear shift’ after certain period of ‘wait and see’There is persistent speculation of a rebound in U.S. inflation due to the imposition of reciprocal tariffsGiven that uncertainties regarding various U.S. policies remain high, I believe BOJ should conduct monetary policy in a more flexible manner without being too pessimisticThis is because BOJ may need to nimbly shift back to rate hike cycle in response to policy changes in the United States, in additional to taking action in case downward pressure on economy increasesTo maintain momentum toward hitting its price target, BoJ also needs to maintain its current accommodative monetary policy stanceA rise in the risk premium on super-long-term JGBs tends to induce a deterioration in market functioning, with volatility spilling over to the entire yield curveIt should be noted that such rise in risk premium on super-long JGBs, yield curve volatility, may unintentionally give rise to the risk of monetary tightening effects transmitting widely across the market This article was written by Eamonn Sheridan at www.forexlive.com.

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