Asian stock markets managed broad gains, with Japanese markets outperforming and the Nikkei rallying 1.4%, after a dovish leaning BoJ announcement that left policy settings unchanged, but signalled a longer term review of the overall framework, while stressing that the easing bias remains in place.
The BoJ called for a “broad perspective review” of policy, with a time frame of around 1- to 1.5-years. There was speculation of this, especially after the Nikkei News story hinting as such. But it was not clear it would be announced today at Governor Ueda’s first meeting. The Bank left policy unchanged with a -0.1% rate and the 10-year JGB yield target, YCC, at about 0% with a 0.5% cap. The rate decision was a unanimous 9-0. The Bank also indicated it was scrapping forward guidance. The Bank said it will “patiently continue” with monetary easing. Risks for the price outlook for fiscal 2023 are to the upside, but to the downside for 2025. It forecasts core CPI at 1.8% for fiscal 2023, up from 1.6% previously and at 2.0% in fiscal 2024 versus 1.8% previously. GDP is projected at a 1.4% clip versus the prior 1.7% for fiscal 2023 and 1.2% for fiscal 2024 compared to 1.1%.
Ueda says BoJ won’t hesitate to add easing if needed. Ueda, who at his first policy meeting scrapped the rate guidance and called for a policy review, suggested that this review is not tied to an immediate change in policy, but will feature on an internal analysis from exports. He emphasized that the current policy stance is continued easing, and that the BoJ won’t hesitate to add further easing measures if needed. The bank will continue to seek 2% stable inflation. Ueda said inflation is currently high and that could last for a few more months, with inflation likely to slow from the middle of the current fiscal year. He added that he is not certain how inflation will pick up after it weakens, and that the BoJ will respond flexibly while trying to reach its inflation goal. Ueda said he sees a bigger risk from premature tightening at the moment, which further confirms that the announced policy review does not signal a change in the immediate policy stance.
USDJPY has climbed to 135.80 from a low of 133.381 given the better than 1-year for the review. The 50 minute delay in the announcement versus the average time saw JPY turn jumpy and USDJPY slipped to the lows before the headlines hit. The Yen broke the key 135 resistance which is the confluence of 61.8% Fib. level since February’s highs and also a 2-month resistance level. With momentum rising to the upside, potential retest of February’s highs at 137.00 and 137.80 could be seen next week.
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Andria Pichidi
Market Analyst
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