BOJ monetary policy: Assessing future bias

Bank of Japan (BoJ) braved the market and more specifically Yen’s strength and kept the policy almost unchanged, except for few minor tweaks –

• The bank will keep purchasing the outstanding JGBs at the pace of ¥80 trillion per annum, with a portfolio duration of 7-12 years.
• CPs at ¥2.2 trillion annually, corporate bonds at ¥3.2 trillion annually, and J-REITs at ¥90 billion per annum.
• Policy rate will remain at -0.1 percent.
• It increased the purchase target of ETFs from ¥3.3 trillion to ¥6 trillion and doubled the size of the U.S. dollar funding to $24 billion.

How is the bank likely to behave in future in terms of policy actions?

• Today’s policy doesn’t say much about future, instead, focuses on current monetary policies and to the new measures taken by the central bank.
• BoJ said that against the backdrop of increased uncertainties arising from the UK referendum, emerging market slowdown, and volatile developments in the global financial markets the bank has chosen to act. (Mild dovish bias)
• It expects that current policy coupled with the fiscal stimulus, which is currently compiled by the government will produce synergy effects on the economy .(Neutral bias)
• The bank has said that the staffs have been asked to prepare a comprehensive assessment of the economic activity and prices under the current policies, which would be available by next meeting. (Mild dovish bias)

The analysis of the monetary policy suggests that the central bank is not overly dovish may hold its fire for now, however its reaction to the staffs’ comprehensive assessment to the next meeting would be vital to watch.

The yen has strengthened post policy and currently trading at 103.5 per dollar.