The Bank of Japan Needs to Increase Stimulus if Yen is to Weaken

As Japan’s yen continued to strengthen against the dollar this week, some analysts suggested that further monetary stimulus from the Bank of Japan was needed to put the currency back on its downward track.

The yen was trading at 97.94 per dollar late on Tuesday, hovering near a one-month peak hit on Monday. It is up more than 3.5 percent from a high hit earlier in July.

“The price action on dollar/yen has been a bit worrying and this is looking a little bit like catching a falling knife,” Sean Callow, senior currency strategist at Westpac, told CNBC.

Aggressive monetary easing and optimism about Japan’s economic outlook have helped drive the yen lower against the dollar this year. Its weakness is a central part of Prime Minister Shinzo Abe’s plans to revive the Japanese economy, which has been held back by two decades of deflation.

But some analysts warned that Abe’s economic policies have helped push the Japanese currency back up against the dollar in recent weeks, and that strength has dealt a blow to Japanese stocks. They said that if Japan’s policymakers are serious about delivering a weak yen, then they may have to step up their monetary stimulus efforts.

via CNBC

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