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In case you were too busy checking out how Margot Robbie looked in her surprise wedding, you should know that the Bank of Japan (BOJ) has just published its monetary policy decisions for the month of December. Not only that, but head honcho Haruhiko Kuroda followed it up with a press conference.

What did the BOJ have to say and how have they affected the yen’s price action? Here are four things you should know:

No policy changes, but no consensus either

In a 7-2 vote, the BOJ members decided to keep their monetary policies steady for another month. The move didn’t surprise market players since the central bank just changed its policies last September.

This means that:

  • Short-term interest rates will be kept at -0.1%
  • 10-year JGB yield targets will remain at around 0.0%
  • Asset purchases will continue at a rate of 80T JPY per year
  • ETF purchases will increase at a rate of 6T JPY per year
  • J-REITs purchases will increase at a rate of 90B JPY per year
  • Outstanding amounts of commercial papers and corporate bonds will remain at 2.2T JPY and 3.2T JPY respectively

Take note that not all BOJ members said “aye” to the board’s decisions.

Takehiro Sato opposed both the interest rates and ETF purchases, saying that holding JGBs in negative territory for an extended period of time could have an “adverse impact on the functioning of financial intermediation,” while buying 6T worth of ETFs per year is “excessive.”

Meanwhile, Takahide Kiuchi wanted a 0.1% interest rate and believes that adopting a target for long-term JGB yields is “not appropriate” because it could put pressure on the BOJ to further increase its JGB purchases. He also proposed a tapering of asset purchases to from 80T to 45T JPY, and ETF purchases be toned down from 6T to an annual pace of 1T JPY per year.

It’s not a problem if you don’t look up

Or look at the hard numbers. In the presser that followed, BOJ Chief Kuroda dismissed speculation that the BOJ will adjust to recent changes in the yen and JGB yields.

Kuroda hinted that it’s too early to consider raising the BOJ’s yield targets, saying that inflation is still far from the 2.0% goal and that considering overseas long-term rates in their decisions would no doubt prompt them to raise their yield targets.

He also shrugged off the yen’s recent weaknesses, saying that a weak yen would push up import prices and eventually boost inflation and inflation expectations. Overall, Kuroda doesn’t “see current yen falls as excessive or posing any problem” especially since it’s not too far from its February levels anyway.

Positive economic outlook

The BOJ was generally pretty cool with the economy, saying that it’s on a “moderate recovery trend.” Specifically, they were happy about the uptrends in fixed business investment and sentiment, as well as the resilience of private consumption.

It’s also expecting exports to pick up in tandem with economic improvements in Japan’s major trading partners. However, low energy prices is expected to keep inflation expectations weak and around negative to zero rates in the short-term.

Japan’s Cabinet Office also shared its revisions to its economic outlook today. Real GDP is expected to grow by 1.3% in 2016 (up from 0.9%) and 1.5% in 2017 (up from 1.2%). Nominal GDP growth is expected to rise by 1.5% in 2016 (up from 2.2%) and 2.5% in 2017 (up from 2.2%). Last but not the least, CPI is seen at 0.0% (down from 0.4%) in 2016 and 1.1% in 2017.

The yen bears attacked

Not surprisingly, the prospect of extended stimulus efforts from the BOJ further weighed on the yen and put upward pressure on the yen crosses.

15m Charts of Yen Crosses
15m Charts of Yen Crosses

USD/JPY is now trading 81 pips higher (+0.69%) than its open price while GBP/JPY is up by 69 pips (+0.48%) to 146.09 and EUR/JPY shot up by 65 pips (+0.53%) to 122.62.

For now, it seems like the BOJ members aren’t feeling enough heat from the yen’s recent weaknesses and rapid increases in long-term JGB yields. Well, at least not enough to prompt them into making policy changes. The benefits are still outweighing the risks of tapering their stimulus.

How long do you think the BOJ will last until it has to adjust its policies?

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