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Bank of Japan (BOJ) will announce its monetary policy decisions tomorrow sometime in early Asian hours, probably around 3:00 GMT, followed by a press conference from governor Kuroda.
Current monetary policy
- Early this year Bank of Japan (BOJ) unexpectedly reduced rates to -0.1% and as of now BOJ is pursuing a tiered system for rates.
- It is also 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.
- In September this year, the Bank of Japan (BoJ) introduced yield curve control, which essentially says that the central bank would control the short-term rates via interest rates and long-term rates via control of the 10-year yield, which would be done by purchase and reverse purchase of bonds. As of now, the targeted yield for 10-year bond is close to zero.
Policy expectation and possibilities –
- Since Donald Trump was elected President of the United States, the yen has weakened by more than 11 percent. This should take down a major source of concern for the central bank, which has been struggling to fight the strength of the yen throughout the year unsuccessfully.
- With yen being less of a worry now, the BoJ is likely to keep policy steady tomorrow.
Division among policymakers
- BOJ board remains heavily divided. The last action was done with 6 members voting in favor while 3 opposed.
Impact on Yen?
- Without any action from the BoJ, the yen is likely to ignore tomorrow’s monetary policy meeting, instead, the focus would remain on the dollar, any risk aversion in the market, and the basis swap.
- Several key concerns for BOJ – Weakness in Emerging market, especially China, weak recovery in Japan, US policies towards Japan, and the weakness in the Chinese currency..
The yen is currently trading at 117.1 per dollar and Nikkei at 19380.
