BOJ monetary policy preview

Bank of Japan (BOJ) will announce its monetary policy decisions tomorrow sometime in early Asian hours. Speech by Governor Kuroda is expected to be scheduled at 6:30 GMT.

Current monetary policy -

• BOJ is holding policy rates near zero at 0.1% and pursuing monetary easing through asset purchase (Govt. Bonds, ETFs,REITs) since 2012 and has increased the pace of purchase to ¥ 80 trillion per annum in last October.

• This massive rate of purchase has pushed Central bank's balance sheet to record high which is a major concern in GOJ (Government of Japan) bond market.

Policy expectation and possibilities -

• Economists and analyst are totally divided over this. While many of the economists, including investment bank Goldman Sachs believes BOJ to ease policy further tomorrow, market participants are not too sure.

• However, there may not be enough political will for further easing.

• Moreover, after FED indicated December hike on the table, BOJ might want to wait it out, since Yen is hovering at comfortable level.

• BOJ might choose to extend stimulus after the next sales tax hike.

• Even if BOJ choose to act, it may not increase the pace by ¥ 10 trillion annually.

• It might even decide to tweak its purchase by extending maturity or by including more assets.

• BOJ might even want to wait for the European Central Bank to reveal its easing card.

Division among policymakers -

• BOJ board remains heavily divided. Last action came with 5 member voting in favor while 4 opposed further purchase increase in October 2014.

• BOJ policymakers Mr. Kiuchi has been constantly voting in favor of reducing purchase in tune of 45 trillion Yen.

Impact on Yen?

• Yen is in back foot heading into policy, trading at 121 against Dollar. Gains could be large if BOJ choose to hold policy steady. Nikkei could face major setback.

• Several key concerns for BOJ - Weakness in Emerging market, weak recovery in Japan, China's slowdown, looming sales tax hike.