Japan Central Bank Keeps Policy On Hold

BoJ head office

Japan’s central bank is determined to maintain upbeat price forecasts next week.

The country’s also set in showing a slightly better image of the economy than what it looked like three months ago. It refuses to waver from its conviction that the country has been making slow but steady progress in surpassing deflation.

Governor Haruhiko Kuroda of the Bank of Japan will be conducting a post-meeting briefing. He is expected to remind markets that an exit from the ultra-easy policy is not yet happening anytime soon. This is due to inflation still considerably far from its 2 percent target.

Despite this, it might take a little more convincing for the investors to be dissuaded, said analysts.

They pointed out that investors have learned to be sensitive to even the subtle signs that the BOJ may follow the footsteps of its U.S. and European counterparts in terms of pulling back crisis-mode stimulus.

Kuroda’s comments and the BOJ’s new quarterly forecasts will receive the attention from the market during next week’s rate review. Investors are hoping to find clues regarding the pace the central bank could start shaving down monetary support.

“BOJ policymakers have become more vocal on the cost of prolonged easing, probably to see how markets react. They can afford to do this as the economy is doing well,” said chief economist Yoshiki Shinke.

“The key would be yen moves. The BOJ could start normalizing policy this year if they are convinced such a move won’t trigger an unwelcome yen spike,” Shinke added.

Yen as Top Currency Wager

BWorld - Yen 3D illustration on red surface

A slight change in the BOJ’s bond purchases pushed investors to bet that the central bank is readying to wind back monetary stimulus.

Going long on the yen is the biggest currency wager for AMP Capital Investors Ltd.’s  Nader Naeimi. Singapore-based hedge fund Kit Trading Fund Ltd. Started the bet on yen last week. The fund wagered that the currency will gain around 10 to 100 per dollar.

As Japan shows its longest stretch of economic growth in two decades, bets have been boosted. The country is expected to begin regulating policy as soon as this year.

“A shift in market sentiment on the BOJ could send the yen significantly higher,” said Naeimi. “The BOJ has come to the end of the line and there is little else it can and would want to do to ease policy further, outside of aiming for a steeper curve.”

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