8 Things You Have to Know Before the BOJ Rate Decision

The ECB, the Fed, BOE, and RBA have all taken their time in the spotlight announcing their monetary policy decisions. Now it’s the BOJ‘s turn! Here are 8 things you need to know ahead of the rate statement:

Schedule

Get some coffee ready coz you don’t want to snooze off when the BOJ makes their rate decision tomorrow. Stay tuned to your TV or the internet when the statement is released at 12:00 am GMT!

Market consensus

When the Japanese central bankers conclude their meeting tomorrow, they are expected to announce that interest rates would remain steady at 0.00%-0.10%. Also, the bond-buying target is seen to remain at 70 trillion JPY.

Last rate decision

Remember what happened in the last BOJ rate decision. In July, BOJ Governor Masaaki Shirakawa and his crew also sat on the sidelines. The overnight target rate was left at 0.00%-0.10% and the asset purchase program stayed the same.

USD/JPY Chart

In reaction, the yen initially got sold off and USD/JPY spiked up more than 40 pips to 79.96. The currency quickly recovered its losses though, and the pair ended the day lower at 79.31. I guess traders were happy that the BOJ didn’t increase its stimulus measures like what most were expecting.

What other central banks have done

You also have to keep in mind that the ECB, Fed, BOE, and RBA left their respective monetary policies unchanged. That makes the BOJ less likely to pull off a surprise. After all, monetary policy changes seem to be most effective when they’re coordinated with other central banks.

Probability of currency intervention

As of now, the yen is sitting around 78.50 versus the dollar. This is significant to note because it is still very far from the level where the central bank last intervened. If you recall, the BOJ had first waited for the yen to drop below 76.00 before deciding to weaken it in October 2011.

What this means is that the threat of intervention is very low. The central bank may only take on minor measures to ease the yen, such the extension of its dollar credit facility.

Fundamentals have gotten relatively better

The most recent GDP report showed that Japan actually expended 1.2% in the first quarter, outclassing developed countries such as the U.S. Apparently, reconstruction efforts following the tsunami-earthquake calamity proved to be very helpful to Japan’s ailing economy.

Negative Concerns

One problem that continues to plague Japan is deflation, or falling consumer prices. The country’s consumer price index currently stands at -0.2%, a fifth of a percentage point below consensus.

The debt turmoil in the euro zone is also putting a lot of downside risks to growth. If it gets worse, global demand could suffer which could in turn hurt Japan’s robust export industry.

BOJ Newcomers

There are two new board members of the BOJ, namely, Takahide Kiuchi and Takehiro Sato. These new comers are expected to show inclination to consider new ways of easing monetary policy. They could get creative with monetary policy, especially if they aren’t convinced with Japan’s economic performance.

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