Risk aversion and Aso comments push Yen higher ahead of BoJ meeting on Friday

The Japanese yen has started strengthening ahead of the monetary policy meeting of Bank of Japan (BoJ) on Friday riding on risk aversion triggered by a drop in oil price. The speculation is quite high that the central bank will add some stimulus measures to halt the strengthening of the yen. If the BoJ stays away from further rate cut or additional asset purchase the yen is once again likely to continue on its path of strengthening and according to our calculations, it may reach as high as 90 per dollar. The yen strengthened to as high as 103.98 per dollar in Asian hours of trading. Whereas further stimulus from BoJ could push it towards 111.  

Japanese finance minister Taro Aso said that he expects the Bank of Japan to do its utmost to reach 2 percent inflation, which has eluded the country for decades and also since 2012 despite massive quantitative purchases from the central bank. He also said that what specific measures that will be adopted is up to the central bank. While these comments can be viewed as dovish and could be a precursor of an easing on Friday, it is the minister’s fiscal comments that caused a big rise in the yen. Aso said, the economic stimulus package which is speculated to run into trillions of yen, is yet to be decided on its size.

The yen is currently trading at 104.2 per dollar.