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

Early on Friday, around 03:00 AM GMT, the Bank of Japan (BOJ) will provide the decision of its routine monetary policy meeting. Following the rate decision, BOJ Governor Haruhiko Kuroda will attend the press conference, around 06:00 AM GMT, to convey the logic behind the latest policy moves.

The central bank is widely expected to keep the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields toward zero.

However, chatters surrounding the possible adjustments to ETF-buying strategy and yield curve control (YCC) framework seem to make today’s BOJ event important for the USD/JPY traders.

Ahead of the event, TD Securities said,

Although no change in policy rates is widely expected, the BoJ is expected to announce the results of its review of its policy tools and in particular clarification on the tolerated trading range for 10-year JGBs. Currently, BoJ is seen to accept a range of 20bp either side of the 0% target rate for 10y JGBs but this could widen given recent bond market moves. Additionally, there is speculation that BoJ may remove its annual ETF target of JPY 6tn, while keeping its ceiling of JPY 12tn, allowing more flexibility for the Bank. These changes seem more probable now. Recent JPY weakness will also be a focus given the potential impact on import costs, while benefiting exporters.

On the same line, Westpac mentioned,

The Bank of Japan announces its policy decision (no fixed time). The usually well-connected Nikkei News yesterday claimed that the BoJ would widen the yield tolerance band on its 10-year bond target to -0.25% to +0.25% and make other alterations such as switching to ad hoc equity ETF purchases rather than a fixed annual target, all part of a long-running major review into the bank’s policy approach.

How could it affect the USD/JPY?

USD/JPY benefits from the broad US dollar strength while picking up bids around 109.10, up 0.16% intraday, by the press time ahead of the BOJ. Although the reflation fears and the recent geopolitical chatters concerning the US-China and America-North Korea seem to weigh on the mood, the risk barometer USD/JPY remain on the front foot amid the greenback’s comparative strength versus the Japanese yen’s recent losses.

Talking about the event, widening the band around the BoJ’s long-term rate target is less appropriate and can battle the expected YCC moves. Also, the ETF twists have been long-debated and priced, which in turn suggests a likely less market reaction on the BOJ if the central bank matches broad forecasts.

It should, however, be noted that mentioning vaccine optimism and Tokyo’s off from emergency shouldn’t help the BOJ to forget about previously bearish tones, in which can USD/JPY can have a boost to the north.

Technically, July 2020 top around 108.20 restricts the USD/JPY pair’s short-term downside while bulls are waiting for a clear break of 109.40 to eye June 2020 peak surrounding 109.85.

Key Notes

BoJ Preview: Policy review to focus on yield curve control framework and ETF-buying 

USD/JPY up against a wall of resistance ahead of BoJ

USD/JPY Forecast: Losing bullish strength but holding around 109.00

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.