The BoJ on Tuesday is expected to keep interest rates unchanged at 0.5% and slow the reduction in its bond purchases from FY2026. The focus will be on the tapering plan.
There are little expectations that the BoJ will make changes to its current tapering plan and will announce changes just for next fiscal year cutting the quarterly taper size to around 200 billion yen.
If the central bank announces changes to the current fiscal year, that will be a surprise and will move the yen a lot. A faster tapering pace would give the JPY a boost, while a slower pace would weaken it.
On the interest rates front, the market is pricing just 17 bps of tightening this year which is basically 50% chance of a 25 bps hike by year-end. The commentary from BoJ speakers has been roughly the same and there have been no hints to a rate adjustment coming anytime soon.
They continue to place a great deal on the US-Japan trade deal and the evolution of inflation. Underlying inflation has been rising steadily in Japan and that should keep the rate hike probabilities high, especially considering that we will eventually get to a trade deal. Therefore, watch out for more clear signals on interest rates changes and the timing.
This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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