BOJ to stay committed – Nomura

According to the analysts at Nomura, the FOMC meeting this week will be a key event for USD/JPY, and market interest in the BOJ meeting the day after the FOMC is likely to be low.

Key Quotes

“The BOJ will likely remain focused on implementing its current policy framework, to lower real yields, which should weaken JPY gradually, while tailwinds likely strengthen thanks to the expected earlier Fed hike. Beyond the central bank meetings next week though, French election uncertainty should put downward pressure on the yen crosses.”

“We expect the BOJ to keep its policy unchanged. Although inflation has started to recover, inflation expectations remain subdued. Wage negotiations are also likely to disappoint the Bank, as major companies in Japan are scheduled to announce the result of the negotiations on 15 March. Last week, Governor Kuroda reiterated that the BOJ will continue its powerful monetary easing. From this month the Bank has also started to release the dates of its JGB purchases to improve clarity on its JGB purchases. BOJ officials said the BOJ wants to increase the transparency of its operations, aiming to cut excessive yield volatility. The latest additional efforts to stabilise the JGB market suggest the Bank is not close to consider raising the 10yr yield target yet, in our view. The BOJ will likely stay committed to keep 10yr yields around 0%.”

“Subdued expectations, subdued JPY reactions likely

Market expectations for a near-term BOJ easing remain low. Only 3% of BOJ watchers expect an immediate BOJ easing, according to the JCER February survey, while the Bloomberg survey shows no easing expectations for next week. The FOMC announcement is scheduled a day before the BOJ’s announcement, which will likely be much more important for the FX market. USD/JPY’s reaction to BOJ announcements has already been smaller recently, and a further fall in easing expectations and likely volatility after the FOMC meeting suggest USD/JPY’s reaction to the BOJ’s decision is likely to be muted.”