Greetings, forex friends! As I said in last week’s two-part central bank round-up (part 1 here, part 2 here), we were expecting the BOJ and the SNB to announce their rate decisions this week. And now that the BOJ and the SNB have both released their respective statements, let’s see what they had to say, shall we?
Oh, and if you’re looking for what the U.S. Fed had to say in the latest FOMC statement, then you can check out my detailed write-up here.
The Bank of Japan (BOJ)
As expected, the BOJ Policy Board decided on September 15, by an 8-1 majority vote, to maintain the current policy of increasing the monetary base at an annual pace of around ¥80 trillion while keeping key rates at around 0%.
Regarding the current state of the Japanese economy, the BOJ assessed that “Japan’s economy has continued to recover moderately.” But the BOJ conceded that “exports and production are affected by the slowdown in emerging economies,” which is in line with my earlier economic roundup wherein I pointed out that Japan had just encountered a major economic road bump.
However, the BOJ’s ever-optimistic Governor Haruhiko Kuroda stated in a September 17 statement that “Emerging economies have also seen growth slow. But the global economy continues to expand moderately due in part to solid growth in U.S. and other advanced economies.”
The BOJ didn’t have any specific statements on China during the September 15 meeting, but the minuted for the August 7 meeting showed that BOJ officials did agree that further deceleration in China’s economic growth may have negative consequences on Japan’s exports, so developments should therefore be watched closely.
As for the Japanese economy’s future prospects, the BOJ reiterated that “Japan’s economy is expected to continue recovering moderately,” but the BOJ also continues to expect that inflation will remain around 0% in the near term due to the recent decline in oil prices.
The BOJ also said that its quantitative and qualitative (QQE) monetary easing program “has been exerting its intended effects,” but some analysts and forex traders are already saying that the BOJ would have to introduce more easing measures soon, perhaps as early as the next meeting, since the BOJ stubbornly insists that it will be able to hit the 2.0% inflation target by September 2016.
There were even rumors about overhauling the QQE program altogether after the U.S. Fed’s decision to keep rates unchanged. But despite all these, forex traders still flee to the yen during times of uncertainty. The yen was even able to hold onto its gains after the Greenback staged a major end-of-the week rally that allowed most U.S. dollar pairs to recover to their pre-Fed rate statement levels.
The Swiss National Bank (SNB)
On September 17, the SNB also did what most forex traders and economists expected it would do by leaving the target range for the Libor rate unchanged between -1.25% and -0.25%, with the median at -0.75%. The reasoning provided by the SNB was that it wants to discourage investors from loading up on the Swissy, which the SNB thinks “is still significantly overvalued, despite a slight depreciation.”
The SNB also repeated its promise (or threat, depending on how you look at it) that “it will remain active in the foreign exchange market as necessary, in order to take account of the impact of the exchange rate situation on inflation and economic developments.” And it ain’t an empty promise either since the SNB’s foreign currency reserves have been ballooning recently.
Regarding economic developments in Switzerland, the SNB admitted that the economy stagnated a bit, but the SNB was quick to add that it “expects economic activity to pick up gradually in the second half of the year.”
However, the recent decline in oil prices also prompted the SNB to downgraded its inflation expectatios to -1.2% for this year from the previous -1.0% forecast. The SNB also slightly dropped its inflation forecasts for 2016 from -0.4% to -0.5%, but the SNB still expects that inflation will be back in positive territoy by 2017 since it still “expects the moderate pace of global economic recovery to continue.”
However, the SNB did single out China as a major risk factor to global growth and monetary policy, but it tried to play it off a bit by citing the recent bailout deal in Greece. And with regard to a target for EUR/CHF, SNB Chairman Thomas Jordan announced on Swiss radio that “We [the SNB] have no such target.”
Interestingly enough, the knee-jerk reaction of most forex traders to the SNB’s statement was to send the Swissy higher against most of its forex rivals. It didn’t do too well against the well-defended euro, but there was enough seller follow-through to ensure the Swissy’s victory over the euro for the trading week ending on September 18.