The Bank of Japan (BoJ) is expected to leave its policy rate unchanged at -0.1% while possible adjustments to ETF-buying strategy and YCC framework are likely. According to FXStreet’s Eren Sengezer, BoJ’s policy announcements are unlikely to receive a significant market reaction.
Key quotes
“The BoJ is widely expected to keep its policy rate steady at -0.1% following the two-day policy meeting ending on Friday.”
“While keeping the short-term rate anchored at -0.1%, the BoJ could allow the yield on the 10-year Japanese government bond to deviate modestly from the target level of 0% depending on economic developments. Even so, any tweaks to the YCC framework is likely to be minimal as Governor Haruhiko Kuroda argued that it’s not necessary or appropriate to widen the band around the BoJ’s long-term rate target.”
“The BoJ could make changes to its exchange-traded funds (ETF) buying strategy to have more flexibility in its monetary policy. Currently, the bank has an annual ETF buying target of 6 trillion yen ($55 billion) with an upper limit of 12 trillion yen and the removal of the annual target could be a feasible option.”
“The yen’s reaction is expected to remain subdued with investors having already priced-in these possible adjustments. More importantly, it would be a huge surprise if the BoJ were to forego its extremely dovish outlook and forward guidance given the subdued inflation outlook and downside risks to economic recovery.”
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