Bank of Japan likely to keep monetary policy unchanged in July

The Japanese central bank, Bank of Japan is set to meet this week for its monetary policy decision. At present the focus is on the Japanese central bank amidst several media reports regarding some form of policy adjustments. According to a DBS Bank research report, no substantial changes are expected – directly hiking the 10-year bond yield target or ending the negative interest rate policy.

Trade tensions and emerging market volatility have posed risks to the downside to Japan’s growth outlook for the second half of this year and exerted appreciation pressure on the Japanese yen. Inflation has also undershot expectations, with the headline and core CPI fell to 0.7 percent and 0.2 percent, respectively in June on a year-on-year basis, down from 1.3 percent and 0.4 percent in January. It is challenging for the Bank of Japan to justify rate hikes at this point without hurting market confidence on Japan’s growth and reflation prospects.

Tomorrow’s meeting is expected to focus on how to improve the sustainability of the current policy easing framework. Possible measures will include scrapping the quantitative target of JGB purchases, adjusting the composition of risky asset purchases, tweaking the forward guidance on the yield curve control policy and increasing the flexibility of the 2 percent inflation, stated DBS Bank.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Japanese Yen was neutral at -30.5221, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -94.9116. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex