When are the announcements from the BoJ and how could they affect USD/JPY?
The BoJ's two-day policy meeting concludes today and as usual, the announcements will fall between a potential window of 0200GMT to 0330GMT. If the policy is on hold, then the BoJ will likely make the announcements earlier within that window than later based on previous timings.
There will also be the release of its latest economic outlook report at 03:00 GMT and statement sometime after, scheduled 50 minutes later. The press conference from Bank of Japan Governor Kuroda after the announcements scheduled for 06:30 GMT. The markets are expecting a somewhat dovish announcement considering the strength of the yen and how far away the 2% inflation target remains, especially now that LDP recent electoral victory has bolstered the likelihood that Kuroda gets an unusual second term and Abenomics lives on.
The Bank of Japan (BOJ) is expected to:
- "The BOJ is not expected to change policy.
- Headline line inflation is rising at half the pace of the eurozone.
- The BOJ could shave this year's inflation forecast of 1.1%. It stood at 0.7% in September.
- One of the BOJ's innovations was the yield curve targeting, with the deposit rate set at minus 10 bp and keeps the 10-year yield in a 10 bp range around zero.
- Its next move could be to adjust its yield curve strategy, and there has been some discussion of targeting the belly of the curve (5-year yields), but that may be a 2018 decision. Separately, the LDP recent electoral victory has bolstered the likelihood that Kuroda gets an unusual second term, according to local surveys," vies of analysts at Brown Brothers Harriman.
How might the announcements affect USD/JPY?
Markets are not expecting this to be much of an event for USD/JPY barring a surprise. The real driver stays with the yield spread between the dollar and yen in the ten years. This spread was damaged in the yen's favour overnight on the US political setbacks that squeezed long dollar positions across the board and equated to a sell-off below the 113 handle vs the yen. Any bullish surprises from the BoJ announcements would potentially force the yen higher with the 200-D SMA in sight at 112.58, as seen on the FXStreet Technical Confluences Indicator. "Meanwhile, foreigners have continued to increase exposure to Japanese equities. There has been strong buying in the four-week period ending October 20, according to MOF data," noted analysts at Brown Brothers Harriman.
Key notes:
- Yen Rises Ahead of Bank of Japan
- USDJPY: Looked heavy
- USD/JPY analysis: bearish potential increases below 112.90
About the BoJ decision:
BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.