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Free AccessMNI POLICY: BOJ On Watch For Market Reaction To Abe News
The Bank of Japan will keep a watchful eye on financial markets in coming hours and days, if, as media reports suggest, Japan's Prime Minister Shinzo Abe announces his intended resignation later Friday on health grounds.
The Nikkei stock index fell and the yen strengthened in knee-jerk reactions immediately after the local media reports circulated, before reversing some of the move
Abe will hold a news conference at 1700 JST (0800 GMT) on Friday, with speculation mounting for days that he will resign for health reasons. His resignation could give the impression to markets that Abenomics -- aggressive monetary easing, flexible fiscal policy and growth strategy -- could take a temporary back seat.
One question further for financial markets is whether an Abe resignation results in the resignation of the BOJ Governor Haruhiko Kuroda, as the governor was appointed and reconfirmed by the PM, who has been fully supportive of the central bank's policies.
There are fears inside the BOJ that Kuroda stepping down could trigger market speculation that the central banks will abandon its 2% price target, strengthen the yen and see lower stock prices as growing uncertainties would trigger investors' risk-off attitude temporarily.
Whoever become the prime minister, the government will unlikely change the policy of supporting the economy and employment as the coronavirus hangs around.
The BOJ has said that the momentum toward achieving the 2% price target is lost temporarily due to the coronavirus pandemic but is unlikely to abandon the price target as such a move will strengthen the yen.
The BOJ will continue to make efforts to maintain the stability of financial system in order to avoid Japan from falling into deflation.
BOJ officials are heartened by the lack of the yen's rise following the U.S. Federal Reserve's decision of allowing inflation to overshoot 2% moderately "for some time" to compensate for below-target periods, but they will keep a close eye on a yen.
BOJ Governor Kuroda may make a comment in response to the Abe press conference later Friday
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Why MNI
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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.