BOJ monetary policy preview

Bank of Japan (BOJ) will announce its monetary policy decisions tomorrow sometime in early Asian hours, probably around 3:00 GMT.

Current monetary policy -

• BOJ is holding policy rates near zero at 0.1% and pursuing monetary easing through asset purchase (Govt. Bonds, ETFs,REITs) since 2012 and has increased the pace of purchase to ¥ 80 trillion per annum in October, 2014.

• In December, 2015 BOJ announced it will be additionally purchasing ¥300 billion in equities and increase the duration of the bond portfolio to 10-12 years.

• This massive rate of purchase has pushed Central bank's balance sheet to record high which is a major concern in GOJ (Government of Japan) bond market.

Policy expectation and possibilities -

• Not much is likely from BOJ tomorrow, according to us, at FxWirePro.

• Despite recent financial market turmoil, BOJ is likely to hold policy as it had increased its asset purchase in December. It was miniscule, nevertheless an increase. Moreover size of it suggests, both intention to act further and political will are lacking.

• Moreover, policymakers will be willing to keep powder dry and watch out how recent turmoil plays out.

Division among policymakers -

• BOJ board remains heavily divided. Last action to increase purchase by ¥ 300 billion came with 6 member voting in favor while 3 opposed further purchase increase in October 2014.

• BOJ policymakers Mr. Kiuchi has been constantly voting in favor of reducing purchase in tune of 45 trillion Yen.

Impact on Yen?

• Yen is more likely to gain its direction from Broad based Dollar strength and risk aversion in the market, however there has been some build up in expectations over further easing in the market. So if BOJ hold fire, Yen might gain and Nikkei drop.

• Several key concerns for BOJ - Weakness in Emerging market, weak recovery in Japan, China's slowdown, looming sales tax hike.

 Yen is currently trading at 118.9 per Dollar.