The BOJ delivers a cautious outlook report as economic uncertainty remains high, and the Japanese yen remains mostly unchanged on the release.
One of the most interesting economic reports for currency traders is the one issued by the Bank of Japan (BOJ). Unlike other central banks, the BOJ delivers its outlook report on a quarterly basis without an exact release time. Before 2016, the report was issued twice a year, and the change to quarterly was intended to provide a closer insight into Japanese economic performance.
The report offers the bank’s view of economic activity, and traders care because a more hawkish tone is positive for the Japanese yen (which strengthened in recent weeks after falling against the US dollar).
Highly Unclear Outlook for Economic Activity
Japan started its COVID-19 vaccination campaign on the wrong foot. Only 1.8% of its adult population has been vaccinated, compared to 56.2% in the United States and 64.5% in the United Kingdom. Even the European Union members that hesitated to start the vaccination campaign have managed to give more than 20% of the adult population at least one dose of the COVID-19 vaccine.
The Japanese yen’s weakness in the first quarter of the year is therefore no surprise, and it is not surprising that BOJ’s outlook report — based mainly on Q1 data — points to a highly unclear outlook for economic activity.
The BOJ did project higher growth rates for the fiscal year 2022 compared to those presented in the previous report. The central bank assumes that the COVID-19 virus will gradually decline but the risks are still skewed to the downside.
In summary, BOJ’s outlook report is a cautious one. The bank is aware of the challenges ahead, inflation is nowhere near where it is supposed to be, and vaccination efforts have not met expectations. All these factors weigh on Japan’s economic growth and add to future economic uncertainty.