BOJ Removes Timing Guidance and GDP Day

EURUSD, H1

The BoJ left policy on hold by removed the time-frame to achieve CPI target following its policy review today. The central bank left short-term interest rates at -0.1% and maintained “yield curve control” that targets 10-year JGB yields at 0%. The outcome had been widely anticipated. The vote was 8-1, also as expected, with board member Kataoka dissenting. Today’s policy review coincided with quarterly revision to economic projections, which saw the BoJ leave its inflation forecast for next fiscal year unchanged at 1.8%. What wasn’t expected was that the BoJ’s removal from its guidance of a phrase on the timing for achieving its price target. The latest projection made in January that the price goal will be achieved during fiscal 2019, but this was now absent. The quarterly report noted that “Japan’s economy is expected to continue expanding moderately,” and that while momentum for achieving the price target has been maintained, it “lacks steam.” Japanese Q4 GDP rose 1.6%, completing eight consecutive quarters of growth, but core CPI was 0.9%, well below the 2% target.

There is Q1 GDP data from around the world today, and attention will focus especially given recent market fears that 2018 growth will disappoint. Headlining will be the Advance U.S. report, but there’s also data from U.K., France and Spain, (with the overall Eurozone due on Wednesday). Worries over slippage in recent manufacturing data and signs of slowing momentum out of China and Europe were exacerbated by tariffs and talk of trade wars, which in turn gave rise to beliefs the U.S. won’t be able to achieve the much hyped 3% pace. Forecasts are now around a 2.4% real GDP growth clip for Q1, down from 2.9% in Q4, and compares to the 1.2% from Q1 2017, in part due to the now fairly typical seasonal pattern of weakness. European growth should slow as well. But for the U.S., expectations the tax legislation, stimulus measures, and reduced regulations will be boosting growth beyond 3% in Q2, Q3, and Q4. And Q1 earnings announcements (aside from CAT) also suggest healthy growth over the rest of the year. Evidence of slippage in Q1 growth could keep a bid in bonds into the weekend. All eyes on that key 3% yield on the 10 year note. 

EURUSD quickly gave up the 1.2200 handle following the ECB yesterday and struggles to hold 1.2100 this morning, cable is rotating around the daily pivot point at 1.3935 and USDJPY is ranging between 109.35-20.