Japanese Yen

Bank of Japan needs to walk away from ultra-loose monetary policy to support yen, Deutsche Bank says

Key Points
  • The Bank of Japan must step away from quantitative easing and negative rates, Deutsche Bank strategist says.
  • If the yen falls below 151.94, it will clock a 33-year low against the dollar.

In this article

A 1000 yen note on a tray at a souvenir shop in Hakone, Japan, on Tuesday, Nov. 22, 2022.
SeongJoon Cho | Bloomberg | Getty Images

Among major central banks, the Bank of Japan has been most notorious for its ultra-loose monetary policy, but that must come to an end soon to support the country's currency, according to Deutsche Bank.

"For the yen to do something meaningfully better you really need more of a dovish pivot in every other central bank, or the Bank of Japan really has to start walking away from quantitative easing and negative rates," Tim Baker G10 FX strategist at Deutsche Bank told CNBC's Street Signs Asia

Strategist says Bank of Japan needs to step away from ultra-easy policy to boost yen
Strategist: Bank of Japan needs to step away from ultra-easy policy to boost yen

Quantitative easing is when a central bank tries to increase the liquidity in its financial system by buying long-term government bonds from the country's largest banks.

The yen, which was last trading at 148.98 against the dollar, will clock a 33-year low against the greenback if it weakens below 151.94.

The BOJ has used various quantitative easing tools to reflate the economy in the last three decades.

"There's so much QE they're (BOJ) doing now, more than the Fed and ECB ever did. But the BOJ has been behind the curve on inflation, they keep having to upgrade their numbers, they keep getting surprised. They just seem to be going a bit too slow," Baker added.

The central bank has been cautious in unwinding its long-held ultra-easy monetary policy, wary of any premature moves that could potentially derail recent nascent improvements in the economy.

Late last month, the BOJ said it would allow more flexibility in its yield curve control policy, altering the language used to describe the upper limit of the 10-year Japanese government bond yield.

Stock Chart IconStock chart icon
hide content