ATFX Exchange Commentary: At 11:00 this morning, the Bank of Japan announced the results of the interest rate decision: the policy interest rate remained unchanged at -0.1%, and the 10-year government bond yield target remained unchanged at 0%, but the bond yield fluctuation range was expanded from ±0.25% to ±0.5%. At 14:30 pm, Governor Haruhiko Kuroda said in his speech: This morning’s decision on yield curve control is not to withdraw from the yield curve control policy, and it is too early to discuss specific content such as the monetary policy framework and exit strategy.
Japan’s CPI growth rate has been above 2% for 7 consecutive months. The latest value in October was 3.7%, the highest since June 2014. The long-term goal of the Bank of Japan in regulating the economy is to stabilize CPI growth at around 2%. Although October's data has deviated significantly from this target, it cannot be considered stable. For example, in 2020 and 2021, Japan's CPI growth rate has repeatedly fallen into negative territory. In addition, high inflation in the United States and developed European countries has reached a point of view, and Japan, which is also a developed country, is expected to also usher in an inflection point in price increases. The Bank of Japan is well aware of the "stubborn problem" of low inflation in the country, so it is completely logical to be conservative and cautious in monetary policy changes.
ATFX chart
Relaxing the fluctuation range of the 10-year Treasury bond yield can more truly observe the bond market's response to monetary policy. After the announcement of the Bank of Japan's interest rate decision, the ten-year bond yield rose "straight-line": the opening price was 0.24%, and it hit the upper limit of fluctuation of 0.469% in the morning session. This shows that the market has very strong expectations for the Bank of Japan to abandon its current super loose monetary policy.
The current Governor of the Bank of Japan, Haruhiko Kuroda, will step down in April 2023. The popular successor, Takehiko O, has publicly stated that he will re-evaluate monetary policy. This has led market participants to speculate that the new governor may change the existing YYC policy and instead seek a more active monetary policy. We believe that there is a high probability that Japan’s monetary policy will not undergo major changes due to the rotation of the governor, and the macroeconomic control ideas guided by “Abenomics” will continue. No matter who is elected as the new governor, the objective fact of low inflation in Japan will not change, and the way to deal with low inflation is the YCC policy currently being implemented by the Bank of Japan.
USDJPY was also impacted by the Bank of Japan’s interest rate decision. As of 16:30 today, the cumulative decline was 3.29%. Although the probability is relatively low, if Japan really abandons its loose monetary policy, the appreciation of the yen is expected to be astonishing. In addition, the USDJPY trend is still dominated by the US dollar index and Federal Reserve monetary policy. Since the U.S. dollar index is currently in a weak state and the Federal Reserve has begun to slow down its aggressive rate hikes, USDJPY's decline is likely to continue. Comprehensive view of the
ATFX analyst team: The expectation that the Bank of Japan will adjust the YCC policy will continue to exist until the new governor takes office in April next year. During this period, the yen is likely to experience continued appreciation.
ATFX risk warning and disclaimer: The market is risky, so investment needs to be cautious. The above content only represents the views of analysts and does not constitute any operational advice.
This article comes from the financial industry
