The main concern for the Bank of Japan’s Policy Board at its August meeting, concluding next Thursday (9th), is likely to remain the situation in Europe. The slowdown overseas threatens to further undermine the recovery in the domestic economy which already looks to have paused. The renewed appreciation of the yen has prompted the Ministry of Finance to warn of intervention to stem the currency’s rise which, if conducted, would likely be supported by further monetary easing from the Bank. Nonetheless, in the absence of a rapid escalation of the euro-zone crisis, we expect the Board, which is back at full strength for the first time since April, to leave policy unchanged for now.
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