Inflation: I've been analysing the Bank of England's forecast over the past two years – here's how they got it wrong 
The Federal Reserve held off hiking interest rates 
What central banks are doing to safeguard financial stability and why they must proceed with caution 
Why central banks should stop raising interest rates 
Sure, the RBA froze interest rates on Tuesday, but there's plenty of pain to come 
The Bank of England (BoE), European Central Bank (ECB), Reserve Bank of Australia (RBA), and the U.S. Federal Reserve all has stayed away from taking any action over the UK referendum, there is apparently no reason that the Bank of Japan (BoJ) cannot. Technically speaking, there hasn’t been much data other than the sentiment readings to act upon. Even some of then came way better than expected.
However, the market is expecting or rather dictating the Bank of Japan (BoJ) to do more, if it doesn’t the first thing the market will do is to push the yen higher. The last time, Bank of Japan (BoJ) took policy decision is on June 16th, just a week before the UK referendum. That day yen closed at around 104.3 area after declining from 106. After a month, the yen is still trading at 104.8, though it has curved a low around 98 after the UK referendum. So clear threat from the market is you act or we make the yen stronger.
Despite the threat, the Bank of Japan (BoJ) should act only to fulfil its mandate but not just to influence the exchange rate as such an action may prove inadequate in the medium to long term. For example, the bank of Japan (BoJ) is pursuing the same monetary policy that pushed the yen above 125 per dollar last year, so nothing has changed at the policy front but in the external environment, which is beyond the control of the BoJ.
As of now, wait and watch could be the best suitable policy for the bank. Saying that, it is also important to stress that, BoJ has room to take action but questions will remain-
- Rates are already at a record low and negative in most cases, so what more is there to achieve to spark lending?
- Annual purchase of ¥80 trillion worth of securities has so far failed to bring about inflation, can ¥100 trillion be able to do it?
- An action to just devalue yen; won’t it be a break of the G20 no manipulation agreement?
However, BoJ might have to act tomorrow, out of the political pressure but any such action could be used to go long the yen after initial jolt.
