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BOJ preview: What to expect? - Nomura

FXStreet (Bali) - Yujiro Goto, FX Strategist at Nomura, expects the BOJ to leave its policy unchanged at the meeting on 3-4 September, noting the Bank is unlikely to rush into easing.

Key Quotes

"We expect the BOJ to leave its policy unchanged at the meeting on 3-4 September. Even though Japanese Q2 GDP growth released after the previous meeting was weak, Governor Kuroda remained confident about the economic outlook at the press conference."

"Our economists expect the growth rate to be lowered further next week, but judge the Bank is unlikely to rush into easing, and expect it to evaluate the recovery of the economy in Q3 after the slowdown after the tax hike in April."

"July core inflation excluding the impact of the tax hike remains unchanged at 1.3%, in line with the BOJ‟s forecast (Figure 2). Steady inflation momentum is also likely to discourage the Bank to change its policy for now. Market expectations for September easing are small, and we do not think a decision to leave policy unchanged would influence the FX market significantly."

"There are still small expectations for BOJ easing in October, and Governor Kuroda‟s press conference is worth monitoring. His view on the expected reduction in Q2 GDP growth and weak production data in July will be especially important. The Bank is likely to have to lower its growth forecast again at the 31 October meeting, and he may suggest the possibility of this."

"That said, we think he is very unlikely to give any hint of near-term easing, showing his confidence in achieving 2% inflation target. As we think Governor Kuroda is likely to remain optimistic, we think USD/JPY could fall slightly during the press conference."

"However, we do not expect the decision and press conference to send USD/JPY much lower, and would view any dip as a good opportunity to add USD/JPY long positions ahead of the FOMC meeting and GPIF announcement."

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