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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
- Economists and analyst are totally divided over this. While many of the economists, including investment bank Goldman Sachs believes BOJ to ease policy further in October, market participants are not too sure.
- Most of the fund managers expect BOJ to hold policy steady as Japan is now growing only moderately and BOJ would like to wait for further evidence of slowdown before taking actions.
- Moreover, another policy meeting is scheduled for this month on October 30th.
- 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.
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 tight triangular consolidation against Dollar and price action is almost at its perk, so there could be high volatility over the decision.
- Yen might go for an increase against Dollar, if BOJ just does nothing, whereas any action is likely to weaken it, before market stabilize to revalue.
- Several key concerns for BOJ - Excessive strengthening of Yen over Risk aversion, Weak recovery in Japan, China's slowdown, looming sales tax hike.
