BOJ monetary policy preview

Bank of Japan (BOJ) will announce its monetary policy decisions tomorrow sometime in early Asian hours, sometime around 3:00 GMT. Speech by Governor Kuroda is expected to be scheduled at 5:00 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 October, 2014.

• 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 -

• With both European Central Bank (ECB) and US Federal Reserve monetary policy is done with bank of Japan (BOJ) has more information and in a much better position than previous meeting to act, only if it wants to.

• With financial market and global economy stabilized, compared to last August, when Chinese devaluation rattled market and led to sharp appreciation in Yen. That will leave BOJ policymakers less compelled to act and maintain current stance.

• Moreover, there is no political will for Bank of Japan (BOJ) to act further.

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 more likely to gain its direction from Broad based Dollar strength than policy guidance tomorrow, unless further easing is suggested.

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

 Yen is currently trading at 122.5 per Dollar.