Silver Prices: Bank of Japan Had A Suprise Up Their Sleeve
December 21, 2022 (Investorideas.com Newswire) Is the era of ultra-dovish monetary policy in Japan ending? Maybe, but the Bank of Japan remains cautious; it tightens without tightening.
The Bank of Japan surprised the markets on a hawkish side. No, it didn't raise interest rates. Instead, it decided to review its yield curve control policy and widened the trading band for the 10-year yield on the Japanese Treasuries. To be more specific, the BoJ expanded the 25 basis point band around its 0% target into 50 basis points. It means that the market's long-term yields are allowed to move 50 basis points on either side of the target now. As a result, the 10-year yields on Japan's government bonds jumped from the previous cap of 0.25% to 0.46%.
Governor Kuroda said that the change was introduced to improve bond market functioning, and it's not an interest rate hike. But the net effect is the increase in the interest rates, just as the BoJ would hike them. Nevertheless, officially, the BoJ remains very dovish. However, the shift could signal slow unwind of the yield curve control and ultra-low interest rates.
Yen Surged, Dollar Declined
In reaction to the Bank of Japan's surprising shift, the yen strengthened against its major peers by over 3%. As American-Japanese yield differentials improved modestly, the yen surged to a four-month peak against the dollar. The USD/JPY declined from above 137 to about 131. Euro and sterling also slid significantly against the yen. The US stock market declined initially after the news from Japan but managed to rebound later. The price of gold jumped again above $1,800.
Implications for Silver
What do the BoJ's last decisions imply for the silver market? Well, a stronger yen is fundamentally positive for the precious metals. There is a positive correlation between yen and gold - and, thus, also between yen and silver. It makes sense that when the yen strengthens, the US dollar weakens, which supports the precious metals market. Indeed, the price of silver increased after the BoJ's surprising tweak, as the chart below shows.
Compared to other major central banks, the Bank of Japan remained very dovish (although inflation reached 3.7% in October). The recent change could signal the central bank's dissatisfaction with the recent depreciation of the yen or the upcoming normalization of monetary policy in Japan. Either way, it should fundamentally support the yen and precious metals against the dollar.
If you enjoyed today's free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you're not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!
Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care
More Info:
Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investing involves risk and possible losses. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. Contact management and IR of each company directly regarding specific questions.
More disclaimer info: https://www.investorideas.com/About/Disclaimer.asp Learn more about publishing your news release and our other news services on the Investorideas.com newswire https://www.investorideas.com/News-Upload/
Global investors must adhere to regulations of each country. Please read Investorideas.com privacy policy: https://www.investorideas.com/About/Private_Policy.asp
