The yen and short-dated Japanese government bond yields are where any surprise will show, with USD/JPY near 157.8 going into the release. Because a hold is fully priced, the market reaction will come from the language and the vote. A hawkish package would likely strengthen the yen and lift two-year yields. A dovish split could trigger renewed yen selling. Oil prices remain a background factor: Brent’s run of monthly gains strengthens the case for tighter policy because energy feeds directly into Japan’s import costs. Japanese bank stocks tend to benefit from signals of higher rates, while exporters could feel pressure from a firmer yen.
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Earlier:
- BOJ preview: Daiwa sees hold, but 2% inflation call could open door to December hike
- BoJ preview: MUFG sees hold but a 2% inflation call, with two dissenters the key yen risk
- BOJ to hold at 1.25%, but Ueda signals further hikes toward neutral
- BOJ seen lifting rates to 1.50% in December as 69% of economists expect a Q4 hike
- BOJ reportedly may upgrade inflation forecast, hold rates steady at next week’s meeting
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The Bank of Japan will almost certainly stand still today, so watch what it says, who votes against it and how Ueda chooses his words.
Summary:
- The BoJ decision is due shortly, with no fixed release time; a hold at 1.25% is widely expected
- Markets price about an 80% chance of a December hike
- Analysts expect the Outlook Report to effectively declare that underlying inflation has reached 2%
- Dissent risk runs both ways: two members could call for a cut, while another may push for a hike
- Ueda’s press conference language will be key for December signals
- Tokyo core CPI matched forecasts at 2.6%, output beat expectations and retail sales disappointed
The Bank of Japan is due to announce its policy decision shortly. The central bank is widely expected to keep its policy rate at 1.25%, and markets are focused on any signal that a hike is coming in December.
The decision has no fixed release time, but it typically lands around midday in Tokyo. A hold is almost fully expected, with traders pricing virtually no chance of a move at this meeting following hikes in June and September. Markets now see about an 80% chance of a December increase, up from earlier in the month, and a hawkish tone is widely anticipated.
Three elements will shape the market reaction. The first is the quarterly Outlook Report, in which analysts expect the board to effectively declare that underlying inflation has reached the bank’s 2% target. That would mark a shift from pushing inflation higher to keeping it stable. Policymakers may also nudge up their inflation forecasts as higher oil prices feed through to consumer prices.
The second is the vote. Two board members opposed the September hike and could dissent in favour of a cut. That would undercut a hawkish message and weigh on the yen. Another member may push in the opposite direction and propose a hike.
The third is Governor Kazuo Ueda’s press conference later in the afternoon. Any shift from saying rates are decided meeting by meeting toward language pointing to the next meeting would likely be read as a strong December signal.
The morning’s data gave policymakers a mixed picture. Core inflation in Tokyo, which excludes fresh food, came in at 2.6% in October, in line with forecasts and above target. Factory output rose more than expected in September, and manufacturers lifted their October production plans sharply, while retail sales fell short of expectations.
The yen has held steady near 157.8 per dollar ahead of the announcement. A clear 2% declaration, a firm Ueda and a hawkish dissent would likely support the currency and push short-dated Japanese government bond yields higher. A dovish split or a cautious tone could trim December expectations and weaken the yen.
Bank of Japan Governor Ueda press conference will follow at 0630 GMT.
This article was written by Eamonn Sheridan at investinglive.com.