On Friday, the Bank of Japan (BoJ) will conclude its latest monetary policy meeting approximately at 2:00 GMT. The central bank is widely expected not to announce any changes in its key policy actions by holding short-term interest rate target at -0.1% and keep directing 10-year government bond yields toward zero.
With the absence of quarterly outlook, the BoJ meeting is more likely to turn out as a non-event. However, comments from the Governor Haruhiko Kuroda during a press conference after the rate statement could become important. Investors seek for future policy decision considering the central bank’s sustained favor for a 2.0% inflation target that has been criticized off-late. Adding to the importance of Kuroda’s speech will be a recent increase in the Japanese Yen (JPY) and how the central bank sees its role during such times.
TD Securities mention in their report,
“Recent comments from BoJ Governor Kuroda highlight that further easing could be contingent on the JPY. If the JPY strengthens BoJ could consider options such as further lowering short term rates, buying more assets, increasing the monetary base or cutting the long term yield target. None of these are likely to be on the table as the JPY has weakened from 108 to 112 so far this year.”
Goldman Sachs says,
“Specifically, we expect the BOJ to maintain its short-term policy rate target of -0.1% and 10-year yield target of 0% (leaving the band for 10-year yields at ±20 bp) and make no changes to its program of ETF and other risk asset purchases.”
“Also, we expect the BOJ to maintain its long-term JGB purchase guideline of increasing its net holdings at a pace of about ¥80 tn per year.”
“Discussion at the meeting will focus on evaluating January data, especially production and export data, which were notably weak.”
“The BOJ will likely need to lower its production and export assessment, in our view, while it is likely to maintain its overall economic assessment.”
How could it affect the USD/JPY?
Latest questions on the central bank’s inflation target and weak data might push the Governor Kuroda towards accepting challenges to the BoJ’s 2.0% target framework, which if happens could offer intermediate strength to the JPY on expectations of a policy change. However, only mention of economic pessimism and avoiding signals for a policy change could keep dragging the JPY downwards.
Technically speaking, the USD/JPY pair is heading towards 112.10 resistance level with 112.30 and 112.60 in focus afterward. Should the pair declines, 111.40-30 area comprising 100-day and 200-day simple moving averages (SMAs) seem crucial to watch as it holds the gate for the pair’s further downside to 110.80.
About BoJ Rate Decision
BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.
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