FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the yen has strengthened in the Asian trading session as the ECB-induced relief rally in risk assets has lost momentum. Key Quotes “Asian equity markets have declined sharply with weakness most evident in the Chinese equity market which has declined by just over 6%. The price of crude oil has fallen back below USD30/barrel contributing to renewed weakness in global equity markets and further highlighting that global investor risk sentiment continues to remain fragile in the near-term. The yen has been little impacted by a Bloomberg report released yesterday which stated that some BoJ officials view it as a “close call” as to whether the policy board will add to stimulus at this week’s meeting. Officials will reportedly be watching carefully economic data and market movements until the gathering ends on the 29th January. A further material strengthening of the yen and weakness in the price of crude oil and Japanese equity market would increase pressure on the BoJ to ease monetary policy further although we remain sceptical that it will prompt the BoJ to act as soon as this week. Even if the BoJ were to surprise our expectations and deliver further easing, it is likely that the negative impact on the yen would be dampened by the more challenging external environment which is supporting a firmer yen. Downside risks to the BoJ’s inflation outlook are increasing which is likely to prompt downward revisions to their inflation forecasts at this week’s meeting. The market is already aware the BoJ has been focusing more on that measure on inflation which is one reason why market expectations for further BoJ have been more limited recently. A formalization of the shift in focus is therefore unlikely to materially shift BoJ easing expectations and yen direction.” For more information, read our latest forex news.