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Analysts at Nomura explained that investor interest in the July BOJ meeting remains high, while expectations of an immediate policy change are likely declining.

Key Quotes:

“We do not expect the BOJ to raise its 10yr yield target immediately at the meeting next week, and super-long term JGB yields stabilized today (see “What the BOJ can do”, 23 July 2018). In FX markets, implied volatilities of yen-crosses have also calmed down slightly.”

“Our BOJ normalization expectations index spiked this week, but a repricing of BOJ surprise risk has likely completed for now. Even if the BOJ does not make any significant decisions at the meeting next Tuesday, the calendar will still be busy for the next two weeks for BOJ watchers and Japan trading.”

“After Governor Kuroda’s press conference, investors will pay strong attention to the  rinban  operation schedule for August, released on 31 July. A Nikkei article says BOJ officials, including Deputy Governor Amamiya, will make a final adjustment for the July meeting from the 25th, and BOJ bureaucrats are preparing various ideas, including changing the way in which JGBs and ETFs are purchased. Thus, investors are more likely than usual to see major changes in the  rinban  operation schedule.”

“We view the speech by Deputy Governor Amamiya on 2 August and the summary of opinions for July meeting on 8 August as important in gauging the potential for major policy changes into September and October meetings.”

“Mr.  Amamiya has been involved in monetary policy planning for decades, and we see his stances as crucial for any policy tweaks (see “JPY: Messages from new BOJ leadership”, 2 March 2018). The market would likely react significantly to any hints from him on the direction of monetary policy tweaks/changes. Then, the summary of opinions for the July meeting on 8 August will be crucial. If there are not many active discussions on mitigation measures and/or there are many negative views on the measures to help financial institutions, market expectations for a big policy shift into September and October meetings will decline further, while active discussions can raise market expectations.”

“The LDP leadership election (TBD, but most likely on 20 September) and PM Abe’s stance on monetary policy will be important, while the semi-annual Financial System Report in October is also  key  event. In 2019, there are more political events (nationwide local elections, upper house election, and scheduled consumption tax hike), which will likely make it more difficult for the BOJ to tighten monetary policy.”