Japanese Yen’s Bullishness: BoJ’s Household Survey Sees Higher Prices for Longer In Japan

Speculation is mounting that the Bank of Japan will adjust its ultrasoft monetary policy as soon as this month in response to recent economic data, driving the yen to its strongest level against the dollar in about a month.

The Japanese currency appreciated to below 140 against the greenback at one point on Wednesday, strengthening by more than 4 against the dollar over the past week. Japanese bond yields also have climbed, with the benchmark 10-year Japanese government bond touching 0.465% for the first time since April on Tuesday and hovering around 0.45% Wednesday.

Meanwhile, BoJ’s Central bank survey on household inflation expectations revealed that households expect inflation to average a massive 10.5% in one year’s time. In addition, the share of respondents anticipating rising prices 5 years from now rose from 75.4% to 79%.

Considering this latest data alongside the fastest rising wage growth seen in almost two decades, economic conditions in Japan are slowly improving. With actual inflation being constantly recorded above BoJ’s target and inflation expectations rising pro rata, pressure is beginning to mount on the Bank of Japan to retract its ultra-accommodative monetary policy. With longer-term yields capped by the BoJ, the Japanese yen becomes the sleeping volcano where markets place their bets on BoJ’s policy adjustments.