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BOJ withholds easing, but expectations calm USDJPY impact - BNP

FXStreet (Delhi) - Research Team at BNP Paribas, note that the BOJ opted to keep policy unchanged with no change in policy rates and its asset purchase program continuing at a pace of an open-ended JPY80trn annual expansion of the monetary base.

Key Quotes

“The accompanying semi-annual outlook report included a downward revision to the BoJ’s CPI outlook with the inflation forecast for FY2016 lowered to 1.4%, down from 1.9%. The BoJ has pushed back the time it expects to reach is 2% CPI target to the second half of FY2016.”

“Although the CPI outlook has been lowered, the BOJ’s forecasts remain optimistic – BNP Paribas forecasts are for inflation to average only 0.7% in 2016 (calendar year).”

“USDJPY’s reaction to the announcement has been muted overall, reflecting that market expectations for further easing were low. In addition, as we have been highlighting throughout the week, JPY positioning is long according to our BNP Paribas Positioning Analysis, limiting scope for a bullish JPY reaction.”

“Going forward, monetary policy divergence remains a theme for USDJPY with the Fed moving closer to raising rates and the BOJ leaving open the option to loosen policy. We also expect Japanese investor flows to continue to provide a steady source of support for USDJPY and forecast 130 at mid-2016.”

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