Speculation is mounting that the BoJ are soon to become much less independent than heretofore and that Japanese politicians are going to mandate their central bank in certain key areas. This is a worrying development as politicians by their very nature have a short-term perspective revolving around being re-elected.
The upcoming leadership vote in the ruling Democratic Party and the introduction into parliament of the ‘Sayonara Deflation’ bill could have some serious repercussions for the BoJ. The BoJ could be mandated to deliver inflation of between 2% and 3% and to ensure that the USD/JPY rate stays above 90.00. Little wonder that the big hedge funds were loading up on long positions (but they were perhaps a little early and therefore were seen selling at 85.00 on Friday).
So much for free market forces and independent monetary policy. All of this may take a few months to happen but volatility in the JPY can only increase as we near year’s end.
