Early on Thursay, around 03:00 AM GMT, the Bank of Japan (BOJ) will provide the decision of its routine monetary policy meeting. Following the rate decision, BOJ Governor Haruhiko Kuroda will attend the press conference, around 06:00 AM GMT, to convey the logic behind the latest policy moves.
The Japanese central bank is widely expected to keep the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields toward zero.
Although the BOJ isn’t expected to offer any change in its monetary policy, the quarterly economic forecasts will be important to watch following the multi-day activity restrictions in the key prefectures, including Tokyo, due to the coronavirus (COVID-19). Hence, today’s monetary policy meeting is less likely to become a non-event like always.
Ahead of the event, Westpac said,
The Bank of Japan is expected to keep its basic policy settings intact yet again, most notably the “around zero percent” yield on the 10-year bond. In the quarterly forecasts, the BoJ is expected to trim its 2021 GDP projection but nudge up 2022. Inflation forecasts are likely to remain below the 2% target through 2023 – no troubling inflation surge in Japan at this stage.
Additionally, FXStreet’s Dhwani Mehta said,
The Fed-BOJ monetary policy divergence will continue to play out in favor of the US dollar in the coming months. However, the Japanese yen could likely extend the correction from multi-year lows of 114.69 against the greenback on the BOJ announcements. The prevalent market mood and the dynamics in the dollar and yields will also have a significant bearing on the major at the time of the BOJ decision.
How could it affect the USD/JPY?
USD/JPY remains sidelined around 113.80 following the first daily loss of the week. The yen pair remains pressured as the US Treasury yields pick up in a consolidation mode before the key preliminary US Q3 GDP and monetary policy meeting of the European Central Bank (ECB). Also challenging the quote is the market’s rush for risk-safety ahead of the BOJ event.
While portraying the market moves, the 10-year Treasury yields drop 2.3 basis points (bps) to 1.55% but the S&P 500 Futures print mild gains by the press time.
Given the wide division between the policymakers of the US Federal Reserve (Fed) and the BOJ, the carry trade opportunities may widen should the BOJ choose to keep the easy money flowing by citing the virus-led economic hardships. The same should help the USD/JPY prices if the policymakers choose to keep the monetary policy unchanged and sound dovish. In an alternative case, the USD/JPY reaction will depend upon today’s preliminary US Q3 GDP amid the Fed tapering tantrums.
Technically, USD/JPY remains in a bullish consolidation mode between 113.20 and 114.45.
Key Notes
USD/JPY consolidates below 114.00 ahead of BOJ decision, US critical data
BOJ Preview: Focus on outlook tweaks ahead of general election
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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