Morning Brief – BOJ Meeting Outcome

The Bank of Japan kept interest rates unchanged today at -a 0.1% target for short-term interest rates, and the target for the 10-year bond yield at around 0%, and pledged to conduct unlimited, daily, fixed-rate bond-buying operations in its defence.

Some of the biggest policy language changes today were when the central bank acknowledged that the Bank of Japan will continue to review ETF buying and comments on inflation.

The central bank noted that underlying rise in inflation likely to heighten medium to long-term inflation expectations and lead to sustained rise in inflation accompanied by wage gains.

In terms of, key forecasts the Bank of Japan’s Core-core CPI median forecast for fiscal 2022 at +1.8 vs +1.3% in July and Core-core CPI median forecast for fiscal 2023 at +1.6%vs +1.4% in July.

The central bank also saw real GDP median forecast for fiscal 2023 at +1.9% vs +2.0% in July and real GDP median forecast for fiscal 2024 at +1.5% vs +1.3% in July.

Comments in the economic outlook report provided little good news and the central bank also subtly touched upon its recent intervention in the foreign exchange market.

The policy statement said that the central bank “Must be vigilant to financial, currency market moves and their impact on Japan’s economy, prices”.

Bearish rhetoric was also heightened as the BoJ said “Uncertainty regarding Japan’s economy extremely high” and “Risks to economic outlook skewed to downside”.

On the looming recession they noted that “Overseas economies showing signs of slowdown due to global inflationary pressure, central banks’ interest rate hikes”.

The USDJPY pair ticked down marginally after the meeting. This week the pair had a huge drop after the Japanese central bank finally acted in the foreign exchange market.