Yen reacted with strength to the Bank of Japan's (BoJ) decision this morning to leave its monetary policy unchanged. Clearly some investors had expected more expansionary monetary policy or predicted a notably more pessimistic outlook. But the accompanying statement remained largely unchanged.



The few changes that were made are quite something though: the weak economic development of the EM countries has been included into the statement. According to the BoJ the latter is the main reason why exports and industrial production were flat recently. Even though according to the BoJ domestic demand benefits from rising investment as a result of increased company profits.



However, if industrial production was unable to rise further as a result of weak external demand that could quickly be a thing of the past. Economic momentum in Japan does not yet seem sufficiently strong to exist without demand from abroad. Of course the BoJ is well aware that the latter can be fuelled most easily via a weaker currency.



"Even if a weaker currency is only needed to prevent the economy from becoming less competitive as a result of recent depreciation of the Asian currencies. The BoJ is certainly not going to be pleased about further JPY appreciation", says Commerzbank.



Speculation about a further easing of monetary policy is likely to pick up over the coming week, in late October it will be one year since the Japanese bond purchasing programme was last extended.