The highly anticipated Bank of Japan decision is due around 22:00-23:00 Eastern (03:00-04:00 BST/London) and is expected by most analysts to issue a set of broad measures: i) raise annual JGB purchases to JPY 90-100 trn from JPY 80 trn, ii) boost ETF purchases to JPY 4.0-4.5 trn from JPY 3.3 trn, iii) cut policy rate from -0.1% to -0.3% to -0.4% and; iv) cut the interest rate on reserves. This is not the first time that the majority of economists polled by Bloomberg and Reuters expect such aggressive measures. So why this time?
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PM Abe's LDP landslide win in this month's Upper House elections was considered as another go-ahead for him to force the BoJ into another all-in policy stimulus of higher asset purchases to reverse zero-bound inflation and fresh yen strengthening. Said differently, Abe's main targets are to avoid sub 100 USDJPY exchange rate and sub-1.0% inflation rate.
Although global equity have been rallying, the yen remains stubbornly close to the 100 level, inflation is slowing and firms can't be relied on to raise salaries. Kuroda is known for surprising with large scale QE in April 2013 and October 2014 and with negative rates in January 2016. Will a surprise be expected? Is it priced in the market? We will see. A new tactical trade was added to the Premium Insights with 2 charts, in combination of existing JPY trades.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
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