BoJ seems committed to keep 10-year yields at zero pct, likely to keep policy rate steady

The Bank of Japan is expected to release its two-day monetary policy meeting decision on Tuesday, December 20. It is widely expected to keep its benchmark interest rate unchanged at -0.10 percent while continue to buy at 80 trillion bonds annually. Also, the central bank seems committed to keeping its benchmark 10-year bond yields near zero percent.

This is consistent with the latest Reuters poll, in which all 15 analysts agreed with the steady monetary policy while targeting bond yields rate. It is worth remembering that the JPY weakened significantly against the dollar after Republican candidate Donald Trump was announced as a winner of 2016 Presidential election in November, giving the central bank a sweet spot amid rising global inflation expectations.

Further, Wednesday’s Federal Reserve inflation and Fed fund rate outlook cheered the Bank of Japan, sending USD/JPY to one year high, thereby rising possibilities for price boost. The Federal Reserve in its last monetary policy of 2016 signalled that next year the United States central bank will increase its interest rate thrice supported by Trump’s fiscal policies, Trump takes office in January.

Moreover, the BoJ is also expected to keep its inflation and economic growth forecast unchanged until it achieves it. However, the demand for more stimuli has declined post weakening of JPY and strengthening of Nikkei 225. It is worth noting that the main focus of the market will on the BoJ’s economy view, the recent jump in 10-year yields and the measures to counter yields growth.

Meanwhile, the benchmark 10-year JGB yield rose 2 basis points to 0.09 percent (highest since mid-February), while it also touched 0.10 percent intraday. It is widely expected that the BoJ wants to keep borrowing cost in the range of 0-0.1 percent. As it already touched end point today, it is important for the market to note the central bank next move.