European Stocks Flat as Oil Prices Rise, US CPI in Focus 
BOJ Rate Decision in Focus as Sticky Inflation, Weak Yen Shape USD/JPY and Nikkei Outlook 
Gold Price Hits Two-Month High as Investors Await US Inflation Data 
BOJ Holds Rates at 1% as Inflation Outlook Eases, October Rate Hike Still Possible 
S&P 500, Nasdaq Slip as Oil Jumps on Iran Tensions 
Japan PM Sanae Takaichi Unveils Growth Plan as BOJ Independence Concerns Lift Bond Yields 
Iran-Oman Near Strait of Hormuz Deal as Shipping Tensions Persist 
Singapore Central Bank’s Exchange Rate Policy Explained: Why MAS Uses the S$NEER Instead of Interest Rates 
Yen Stabilizes After Intervention Slide as Australian Dollar Hits Eight-Week High 
England Drought Expands to 71% as Heatwave Deepens Water Crisis 
The Japanese yen is expected to remain under appreciation pressure in the near term as the Bank of Japan fuelled high expectations of its meeting this coming Wednesday. However, it remains highly unlikely that it will be able to convince market participants to reach its inflation target anytime soon.
The Bank of Japan (BoJ) had promised a comprehensive assessment of its monetary policy for this Wednesday’s meeting. Over the past few days and weeks, there has been a lot of speculation about what the BoJ might decide. The expectations differ widely in some respects. While some expect hardly any or no changes at all to its monetary policy, others speculate that the BoJ will lower interest rates on banks’ current account balances further into negative territory and/or extend its bond purchasing programme (QQE).
Moreover, there was speculation recently that the BoJ was mainly planning to lower interest rates at the short end rather than the longer end of the curve. Since the introduction of negative interest rates in mid-February interest rates at the ultra-long end of the curve (10-40 years) fell so considerably that the interest rate curve has flattened notably.
According to BoJ Governor Haruhiko Kuroda, this has important implications for the effectiveness of monetary policy: first of all low long term interest rates would cut yields for pension and insurance investments which in turn was putting pressure on corporate profits. Moreover the flat yield curve was putting pressure on the margins and thus the profitability of financial institutions.
Against this background, the BoJ may decide next Wednesday to conduct its bond purchases in a more flexible manner. At present it is aiming for an average (residual) maturity of 7-12 years. If it abandons these maturity requirements it could concentrate bond purchases at the short end thus steepening the rate curve again.
"We do not exclude that JPY would initially depreciate as a result. We however, see a risk that JPY appreciation will accelerate following Wednesday’s meeting," Commerzbank commented in a recent research note.
