Tomorrow during the Asian session, the Bank of Japan (BOJ) will publish its monetary policy decision. What’s more, BOJ Governor Kuroda will conduct a presser after the statement is released.
Planning on trading the report? Here are some points that might help:
BOJ made tweaks last July
That’s right! After keeping their policies steady for a spell, Kuroda and his team have decided to spice up their policies.
For starters, they finally tried rolling out a forward guidance by sharing that (emphasis mine):
“The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time.”
Then, they revealed that the 10-year JGB yields – which were targeted “at around zero percent” for the longest time – can now “move upward and downward to some extent.”
Pip Diddy has more deets on the BOJ’s policy changes. For now, all you need to know is that head honcho Kuroda was also quick (and successful) to communicate that July’s changes WON’T lead to anything as exciting as early exit from stimulus or even interest rate hikes.
Low for longer
Just in case anyone forgot about the BOJ’s stance in July, Kuroda was happy to repeat in an interview three weeks ago that “There is no thought about raising (rates) for quite some time,” adding that “as long as uncertainties remain, the commitment is to maintain the current low rates…”
This is probably why market analysts and their momma are expecting the BOJ peeps to keep their policies steady in September.
That doesn’t mean we won’t see any market-moving headlines, though!
Which brings me to my next point…
BOJ might be putting inflation in the backburner
While the central bank will definitely keep its eyes on the prize, many believe that the BOJ will also have more to talk about than just inflation this time around.
For instance, Kuroda could talk about how the BOJ thinks the planned consumption tax hike in October 2019 will affect the economy.
He already cited the tax hike as one of the “uncertainties” that weren’t mentioned before, but we might hear more about it tomorrow.
Emerging market troubles could have also gotten the attention of BOJ members, as deteriorating conditions could push Japanese portfolio managers to repatriate yen into the economy (read: strengthen) and likely put upward pressure on safe havens like government bonds.
And then there’s the small issue of global trade war. Japanese newspaper Nikkei reported that BOJ’s 32 branches have already conducted an “emergency survey” to gauge the impact of the trade war on Japan’s supply chains and exports.
And that was just with U.S. and China really going at it. Aside from both parties recently stepping up their tariff games, word around the hood is that Trump could be setting his sights on Japan next.
Nikkei quoted “a BOJ official” who put all these concerns together. He said:
“If the trade war accelerates, or emerging markets go into a crisis, nobody will be talking about Japan’s low prices.”
Duhn duhn duhn.
Planning on trading the event?
While the BOJ isn’t likely to make any policy changes, it could still cause a ripple or two on the yen’s price action.
Keep close tabs on how aggressively Kuroda and his team will try to bring their previous points across.
Remember that they don’t like it when we think of their adjustments as “tapering” or the start of “tightening,” and that they want to help financial institutions by inspiring volatility (but not too much!) in the bond markets.
Oh, and don’t forget to pay close attention to what BOJ members think about the recent trade-related headlines! If the BOJ is more concerned than many over the impact of any trade war attack, then we might see more uncertainty (and maybe more stimulus?) for the economy down the road.