Thursday, 21 September 2017

Bank Of Japan: Our New Focus

Posted by Valentine at 10:27 Labels:

And so the Federal Reserve has made its announcement and as expected it was nothing out of the norm. The regulator left interest rates in a range between 1.00 and 1.25 percent. But not so fast, the US regulator is not the only central bank gathering to revise monetary policy this week.

The Bank of Japan (BoJ) is about to end its September monetary policy meeting. While there are no expectations for interest rate changes, the focus again will be at the after-hour remarks concerning possible adjustment to the so-called stimulus program and bond yield target.

BoJ’s short term interest rate currently stands at a minus 0.10 percent, while the 10-year bond yield swings around 0.00 percent. However, sources related to the matter have expressed that Nippon policymakers could be considering a raise in the bond yield target as the country has been showing a continuous economic expansion over the last months.

Market participants are also keeping an eye on the regulator’s 80 trillion yen bond purchasing program, which is mainly spent on Japanese Government Bonds (JGBs). Economist have pointed out the implementation of the Yield Curve Control (YCC) policy has made the JGB acquisitions irrelevant for the central bank.

So what if the BoJ decides to close down its JGBs purchasing program?

Most likely we would see a clear retreat on the USDJPY, followed by an upward correction afterwards. But of course, as we always suggest, better to work with facts than rumors.

What are the next steps for BoJ to begin normalizing its monetary policy?

After it reduces government bond purchases, the Japanese regulator could start adjusting its MP by shutting down its negative interest rate policy. It’s important to note that the normalization process could begin even before inflation levels reach the bank’s 2 percent target.

If not this month, when the BoJ could begin adjusting?

The regulator certainly pays strong attention to inflation and its development would eventually determine the course and pace of any monetary adjustment. If consumer prices continue to grow sustainably in the next few months, a real move could be soon be realised.

Stay tuned!

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