The Bank of Japan’s decision to forego additional stimulus at its April meeting was a major disappointment to markets. The yen climbed to fresh highs against the dollar, while the Nikkei slumped. The rise in the currency will only add to downward pressure on inflation. With economic activity sluggish, we think that the Bank will be forced to ease before long and that this in turn is likely to cause the yen to reverse course and weaken again.
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