Earlier this morning and during the Asian session today, the Bank of Japan left its current policy unchanged as widely expected.
Below some key points of the Bank of Japan statement
- Maintains short-term interest rate target at -0.1 pct
- Maintains 10-year JGB yield target around zero pct
- Leaves unchanged pledge to buy JGBs so that its holdings increase at annual pace of around 80 trillion yen
Economic Projections
Higher GDP Forecast:
- Expected +1.8 pct in fy2017/18 vs. +1.6 pct projected in April
- Expected +1.4 pct in fy2018/19 vs. +1.3 pct projected in April
- Expected +0.7 pct in fy2019/20 vs. +0.7 pct projected in April
Inflation estimates were lowered:
- Expected +1.1 pct in fy2017/18 vs. +1.4 pct projected in April
- Expected +1.5 pct in fy2018/19 vs. +1.7 pct projected in April
- Expected +1.8 pct in fy2019/20 vs. +1.9 pct projected in April
Key points on Bank of Japan Quarterly reports:
- Recent moves in CPI have been relatively weak
- Rise in medium to long-term inflation expectations has been lagging behind somewhat
Below some key points for Bank of Japan’s Governor Kuroda speech
- Risks to prices and economy tilted to the downside
- Will adjust monetary policy as needed to maintain price momentum
- Board members Kiuchi, Sato made a proposal based on the view that inflation won’t hit 2% in 3-year f/cast period under report. Rejected by the board.
- Companies more cautious on raising prices but don’t expect this to continue forever
- Inflation expectations projected to rise as firms gradually raise wages, prices
- CPI likely to continue uptrend, increase toward 2 pct
- Projected rate of increase in CPI is lower mainly for the first half of 3 year projection period in BOJ’s quarterly report
- Risks to economy, prices are skewed to downside
- Momentum toward hitting price target is maintained but not yet sufficiently firm
- BOJ to make policy adjustments as appropriate with view to maintaining momentum toward achieving price target
What Do We Know After All
The Bank of Japan gave us only a few clues about its future policy. So far, there is nothing on the horizon; it’s not clear whether the BoJ will ease its policy further or even change the course.
All that we know is that the Bank of Japan is still dreaming about that inflation target, and they will keep on monitoring the data ahead.
At the same time, whatever happens, the only thing we know is that the BoJ will intervene only when they think that things are not in the right direction. But who knows if things are on the right track anyway?
Yen Weakened Then Soared
The Japanese Yen had an interesting day, but this time, thanks to the US and the ECB not to BoJ. The Yen weakened briefly right after the BoJ decision, traded around 112.30’s.
However, things started to get interesting after the ECB decision, when the Euro soared higher above 1.16. But what made things even more interesting is when the US special council who’s investigating ties between Trump and Russia during the election campaign said that they are expanding the probe to Trump business transaction.
This has led the US equities to decline sharply after they opened higher, sending USD sharply lower across the board, while the Japanese Yen soared. USDJPY tumbled all the way to 111.40’s which is one of our weekly targets mentioned in our weekly video.
In the meantime, it seems that the US Dollar weakness is here to stay, despite the fact that technical indicators for the US Dollar Index are heavily oversold.
Moreover, the USDJPY is still trading above its 50 and 100 DAY MA, which might lead to a short term retracement before the downside trend resumes.
Yet, any upside retracement, for the time being, is likely to remain capped below the 200 DAY MA which stands at 112.90’s, while 111.0 would be the next level to keep an eye on.
