BOJ maintains status quo as expected
Bank of Japan [BOJ] kept interest rates unchanged at -0.1 percent and retained the 10-year yield curve control target of 0.0 percent.
BOJ member Kataoka dissented on the yield curve control and opposed description of the CPI outlook. Kataoka says the probability of CPI increasing to 2% next year and onwards is low.
The policy statement says the Japanese economy continues to expand at a moderate pace and has virtuous cycle from income to spending. The central bank has raised its assessment on public investment.
1. Latest News & Analysis
2. What to expect this time?
Context & info of the event
- BOJ leaves monetary policy unchanged
The Bank of Japan (BOJ) concluded its 2-day monetary policy review meeting and announced no changes to its monetary policy settings, holding rates at -10bps, while maintaining 10yr JGB yield target at 0.00%.
- Kuroda's words
BOJ's Governor, Kuroda, said that the central bank will adjust policy as appropriate to maintain momentum towards 2% price target. He added that Japan's 10-year bond yield has been stable. "Japan's economy is performing better than expected", Kuroda claimed.
- Focus on Treasury yields
With BOJ out of the way, the focus is back on the treasury yields. Yields on the 10-year US Treasury note rose to their highest levels since Aug. 8
BOJ Interest Rate Hike
3. What to expect in the future?
- USD/JPY remains bid as BOJ maintains the status quo
USD/JPY remains bid around 112.45 after the Bank of Japan maintained the short-term interest rate target at -0.1 percent and retained the 10-year yield curve control target around zero percent. The status quo was in line with the market expectation. BOJ member Kataoka dissented on yield curve control as he believes it is not enough to meet the inflation target around fiscal year 2019.
The BOJ decision has not had a major impact on the US-Japan 10-year bond yield spread, which continues to hover around the overnight high of 224 basis points. Ahead in the day, the USD/JPY could maintain its bid tone as European desks digest the heightened odds of one more Fed rate hike in December. However, caution is advised, given the overbought nature of the daily indicators. Risk aversion in the equities due to hawkish Fed could also weigh over the USD/JPY pair.
- Japan: Possible general election on 22 October - Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, suggests that they see a strong likelihood that Prime Minister Shinzo Abe will soon dissolve the Lower House and call a general election for 22 October.
- Will Kuroda extend his term as Governor?
Another focal point, not necessarily in this week's meeting as the decision is not due until year-end, will be who gets elected as the next BoJ governor. Should Kuroda, whose term concludes in April 2018, be offered a 5-year extension, or will a new face sit at the helm of the Japanese Central Bank. According to Nomura's Economics Team, "we still think it is most likely that Koruda will be reappointed." However, the bank does not rule out that uncertainty "could create some volatility and induce JPY appreciation pressure, as the nomination of another candidate could be viewed as a signal that the government is expecting the BoJ to exit its current monetary policy."
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