BOJ Preview: move on, nothing to see here… for now

Kuroda & Co. will have a monetary policy meeting this Wednesday yet policymakers are largely anticipated to keep it unchanged. The ultra-loose monetary policy has been in place for five years, and while other central banks are on their way to normalization, or planning how to do it, the Bank of Japan gives no signs of changing its path. In fact, earlier this month, BOJ's Governor Kuroda repeated that the bank is in unlikely to raise interest rates for "quite some time." He added that, "as long as uncertainties remain, the commitment is to maintain the current low rates," and that the recent steps to make policy more flexible are not a preparation for policy normalization.   And seems logical, given that inflation is way below the 2.0% inflation target.

Over the mentioned five-year period, the central bank has made some twists to adjust its policy, being the latest some flexibility around their zero interest rate policy on government bonds. Recently, Kuroda & Co. defined an acceptable range for yields upward and downward moves of   ±0.1pp. Later, Kuroda said that than double that range could improve JGBs'  function.

The central bank Governor will hold a press conference after the release, and will likely be focused on reviewing the latest adjustments to monetary policy while reiterating that rates will remain low.

 This week, Japan's PM Abe will face a leadership contest. He's heading into winning a third consecutive mandate with no opposition but anyway seems quite likely that the central bank won't rock the boat ahead of the event, to guarantee a smooth continuation of the government.

By the end of last week, PM Abe hinted at his hope for an exit from the current stimulus program, as he said that ultra-easy policy shouldn't continue forever, as economic conditions are showing signs of improving. However, he later clarified that "when to modify the easy policy is up to  Kuroda. I’ve left that decision to him." Japanese FM Taro Aso reaffirmed this last stance and Kuroda's view that a premature debate on ending stimulus could cause market confusion.

The BOJ has largely been a non-event and seems it won't be different this time. Nevertheless, is always advisable to be aware it is a central bank announcement and therefore has the ability to trigger large market movements.