BOJ Preview: Economic forecasts downgrade and hints on December move


  • The BOJ to hold monetary policy steady, downgrade economic forecasts.
  • The central bank could throw hints on further easing in December.
  • USD/JPY will continue with its downtrend after the BOJ decision.

The Bank of Japan (BOJ) is likely to stand pat on its monetary policy settings when it concludes its two-day review meeting on Thursday. Although the policy announcement may not be market-moving, investors will pay close attention to the Japanese central bank’s quarterly outlook report and future policy guidance.

Japan PM Suga to unveil fresh fiscal stimulus

Prime Minister (PM) Yoshihide Suga’s new government is set to compile an additional budget to counter the coronavirus pandemic-caused economic damage. According to media reports, the administration is likely to finalize an extra budget worth around JPY10 trillion ($95.5 billion) around mid-December.

Suga is seen following former Prime Minister Shinzo Abe’s policy, Abenomics, with instructions on the economic measures and benefits likely to be announced next week. The extra budget could be used to extend a labor subsidy program scheduled to end in December and to pay for the distribution of a coronavirus vaccine.

BOJ to maintain status-quo, December move in focus

The BOJ board members are expected to keep rates unchanged at -10bps while maintaining a 10yr JGB yield target at 0.00%. However, the bank is seen extending the deadline for two virus-linked funding programs and enlarged asset purchases at the meeting.

Alongside the policy announcement, the central bank is seen downgrading this fiscal year's economic and inflation outlooks in its quarterly assessment report. The lowering of the growth forecasts is in lieu of the bigger-than-expected economic slump in April-June and soft consumption while the inflation downgrade is largely due to the impact of a government campaign offering discounts to domestic travel, in a bid to boost tourism.

Although the outlook reviews are already priced-in by the markets, any hints on additional monetary policy easing in December, by way of fresh quantitative easing (QE), could have a significant impact on the yen.

Industry experts believe that the BOJ could work with Suga’s government to stimulate the economic recovery but only after the November US Presidential election.

USD/JPY technical outlook

Heading into the BOJ decision, the risk-off flows and US dollar dynamics remain the main market drivers and the scenario is unlikely to change following Thursday’s policy announcement.

The second wave of coronavirus accelerating across the globe and pre-US election anxiety seem to be boding well for the anti-risk yen, as we write. USD/JPY sits at the lowest levels in five-week just above 104.00.

On the daily chart, USD/JPY remains vulnerable to deeper declines. The immediate support of the three-month-old descending trendline, seen at 103.87, could be put at risk on any policy efforts by BOJ to boost the economic rebound.

If the announcement turns out to be a non-event, investors could use it as an excuse to embark upon a corrective pullback towards the 105.00 level, above which the next resistance awaits at the 21-daily moving average (DMA) hurdle of 105.27.

The 14-day Relative Strength Index (RSI) points south within the bearish zone but holds just above the oversold territory, suggesting that there is still some room to the downside.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD hits highest since September amid upbeat mood

EUR/USD has surpassed 1.1920, the highest in around 10 weeks as markets cheer the US transition and upcoming vaccines. A busy data day awaits traders ahead of the Thanksgiving holiday. 

EUR/USD News

Gold: Nears the 200-day SMA support

Gold is trading quite close to the widely-followed 200-day Simple Moving Average (SMA) of $1,797. The safe-haven metal is about to test the long-term SMA for the first time since March. A break below that support cannot be ruled out.

Gold news

GBP/USD advances toward 1.34 amid Brexit hopes

GBP/USD is rising toward 1.34 after EC President von der Leyen said there is progress in Brexit talks. UK Chancellor Sunak's speech and US data are awaited later in the day.

GBP/USD News

WTI rally continues despite large US inventory build

Oil has climbed to fresh multi-month highs, extending Tuesday's price gains as optimism emanating from potential coronavirus vaccines overshadows inventory build-up in the US. The API reports a large buildup of inventories in the weeke ended Nov. 20.

Oil News

Black Friday 2020 Discounts!

Learn to trade with the best! Don't miss the most experienced traders and speakers in FXStreet Premium webinars. Also if you are a Premium member you can get real-time FXS Signals and receive daily market analysis with the best forex insights!

More info

Forex Majors

Cryptocurrencies

Signatures