When is the BOJ rate decision and how could it affect USD/JPY?

The Bank of Japan (BOJ) will release its latest monetary policy meeting decision together with the third quarter (Q3) Outlook Report approximately at 3:00 GMT on Thursday. Although the central bank is widely expected not to announce any changes in its key policy actions by holding short-term interest rate target at -0.1% and keep directing 10-year government bond yields toward zero, quarterly economic outlook increases the importance of the event. It worth mentioning that news from NIKKEI suggests that the BOJ will “reiterate its positive attitude toward mitigation by amending the guidelines.”

Additionally, the BOJ Governor Haruhiko Kuroda speaks at the press conference somewhere near 06:00 GMT and will be closely observed to confirm the Japanese central bank’s future bearish bias.

Ahead of the event, Westpac said,

The Bank of Japan reviews monetary policy today. They are obviously concerned about the sluggish inflation trend and have strongly hinted at announcing some form of looser policy at this meeting. The problem of course is what can they do after all the steps already taken. There is some talk of lowering the policy rate from -0.1% but this would surprise us as the BoJ seems conscious of the impact on banks. We think more likely is a modest boost to ETF and/or REIT purchases and maybe some language indicating greater tolerance of downside on 10 year JGB yields.

TD Securities follows the suit while saying,

A close call but we expect the BOJ leaves the major policy levers unchanged. The BOJ should especially welcome the Fed's signal to pause for now. Meanwhile, market conditions have improved in the BOJ's favour and trade risks appear to have receded. Risk that the BOJ uses a review on inflation to signal optionality on policy changes in the future if conditions are not met. We look for forward guidance to be extended to the end of 2020, but this too is also a close call.

How could it affect the USD/JPY?

While BOJ’s overall emphasis on easy money policy and market’s risk-on mood have been helping the USD/JPY off-late, any strong signal for future monetary policy normalization and/or indications for growth recovery could extend the pair’s pullback from the three-month high.

As a result, buyers should wait for a clear break of August month high of 109.32 to aim for 110.00. On the downside, the pair’s declines below 108.50/45 immediate support area could recall 107.80 and 107.50 numbers to back to the chart.

Key Notes

USD/JPY: Bulls defend the 108.80s despite Fed related pull-back

USD/JPY Analysis: lower in range, risk skews to the downside

About BoJ Rate Decision

BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.