Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions. In what some analysts said could be a seismic shift for global financial markets, the BOJ made its bond yield control policy more flexible and loosened its defence of a long-term interest rate cap. The 10-year Japanese government bond (JGB) yield hit a six-year high of 0.268% in early trade on Friday, before retreating to 0.22% after the central bank’s policy decision. The yen fell as much as 1.9% and bond yields fell after the decision, which was widely expected but disappointed some market players who speculated the BOJ could give into market forces and tweak its yield cap policy. With interest rates rising everywhere else, the yen is no longer as attractive and has been constantly weakening. Usually, the BOJ doesn’t care about the exchange rate, as is the norm for most central banks.

• However, the recent announcement of bond-buying and talks of the town supporting the official push for higher rates in the future push the USD/JPY bears.
• Inflation isn’t a problem in Japan (yet), which allows the BOJ to stay apart from what virtually every other central bank is doing.
• While portraying the market moves, the 10-year Treasury yields drop 2.3 basis points (bps) to 1.55% but the S&P 500 Futures print mild gains by the press time.
• Japan’s gross domestic product growth for the April-June quarter was revised down to an annualized 4.8% from the preliminary 6% print due to weak capital spending.

The BOJ’s policy decision last week signalled to investors that it would now allow the 10-year government bond yield to move closer to 1% before it intervenes. The central bank also made no change to its guidance that allows the 10-year bond yield to move 50 basis points either side of its 0% target. The central bank also stuck to its guidance to keep rates at “present or low” levels, and ramped up a programme to buy an unlimited sum of 10-year government bonds at nord fx forex broker review 0.25%. Rising U.S. Treasury yields and market expectations of a near-term BOJ policy tweak pushed up the benchmark 10-year Japanese government bond (JGB) yield to a more than one-year high of 0.805% on Wednesday – edging closer to the 1.0% ceiling. Under YCC, first introduced in 2016, the central bank seeks to rev up stagnant consumer demand by keeping credit extremely ample, specifically by guiding short-term rates at -0.1% and the 10-year bond yield around 0%.

Upcoming Monetary Policy Meeting Dates

Japanese government bond (JGB) yields tumbled across the curve with the benchmark 10-year yield sliding to 0.37%, well below the BOJ’s 0.5% ceiling and posting the biggest one-day decline since November 2003 at one point. Kuroda’s last policy meeting will be held on March 9-10, ending a decade helming the bank that brought about radical monetary stimulus but ultimately failed to meet its objective of sustainably reviving anemic consumer demand. “We don’t expect the yield to move up to 1%, but have set this cap as a pre-emptive measure.” “We decided to take the step because the entire yield curve was under strong upward pressure, heightening the risk of the 10-year yield exceeding our upper limit,” a BOJ official told Reuters about Wednesday’s move. With Japan’s inflation well below that of Western economies, its focus is to support the stil-weak economy with low rates.

Also increasing the importance of the BOJ announcements are the chatters over Governor Haruhiko Kuroda’s retirement and the government’s help to BOJ tighten the policy afterwards. While the BOJ kept interest rates at ultra-low levels and stressed the need to maintain support for the economy, it said the tweak to its bond yield curve control scheme (YCC) would allow it to respond “nimbly” to risks including rising price pressures. Also, the latest increase in the Japanese inflation clues and the hawkish performance of major central banks highlights today’s BoJ monetary policy meeting announcements as market players place heavy bets on the end of ultra-easy measures during 2023. Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at -0.1% and the 10-year bond yield around 0%.

Bank of Japan loosens grip on rates as prices rise, markets bet on bigger pivot

But it’s possible they could address the currency issue, in particular if inflation projections show that it’s expected to continue to rise. Some speculate that it might be Kuroda himself in his endless press conference after the earnings decision that might make comments indicating a change in the BOJ’s focus. Famously, the BOJ has been struggling to get inflation higher for decades at this point, so higher prices might be seen as a good thing. But the problem is that Japan’s core inflation also includes fuel costs, which have been rising quite a bit recently, and accounts for the bulk of rising prices. Establishing an interest rate is one of the main tools of the monetary policy used by the Bank of Japan to regulate the strength of its currency.

The markets really don’t like uncertainty

“There’s a myth in the market and public that currency intervention works. But the reality is there’s not much the government or the BOJ can do to stem yen falls,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “The inflation forecasts could be revised up in October or next January,” when the BOJ conducts a quarterly review of its growth and price forecasts, Ito said. After a crash to the 200-day MA, is this the bottom, or could silver retest its March lows? A Reality CheckWhile the permabulls proclaimed that interest rates were irrelevant and that silver had… “When we can foresee inflation stably and sustainably hitting 2%, we will consider ending YCC or revising negative interest rates,” he added.

While portraying the market moves, the 10-year Treasury yields drop 2.3 basis points (bps) to 1.55% but the S&P 500 Futures print mild gains by the press time. He also said the BOJ must look not just at downside but upside risks to growth and inflation, signalling that there was scope for a wall street bound is opening diversity doors in investing withdrawal of stimulus next year if economic conditions allow. Shares of Japan’s banking sector (.IBNKS.T) bucked the broader market downtrend to rise 5.12%, highlighting investors’ expectations that years of ultra-low rates that squeezed earnings from loans and deposits could be ending.

Fed Interest Rate Decision

That way, they don’t have to make as much of a change in policy to get the result they want. But this also leaves the markets unsettled, and increases volatility, like we’ve seen over the last few days. There is rampant speculation that the BOJ will further widen the YCC range, or simply do away with it altogether. The consensus for the moment is that there won’t be an official change in policy until Kuroda steps down in April. Doing away with YCC would be a policy change, but as explained above, another widening of the band wouldn’t be considered a change in monetary policy. But now that the situation calls for the BOJ to start tightening – or at least, stop the extraordinary easing – then there can be policy changes.

“We’re seeing heightening inflation expectations, or a change in corporate behaviour,” he added. Since the yen hit a 23-year-low in September last year, the government has frequently prodded the BOJ to make its ultra-easy policy more flexible, in part to prevent low Japanese yields from stoking further currency declines, the sources said. More substantial moves toward policy normalisation, such as interest rate hikes, will come after close scrutiny of data for clues on next year’s wage and inflation outlook, they said. This account of the BOJ’s decision last week is based on conversations with over a dozen government officials, Kishida administration aides and sources with direct knowledge of the central bank’s deliberations. Pressure from Prime Minister Fumio Kishida’s government also played a part, suggesting that future policy tweaks will be driven not just by the inflation outlook but market moves – notably the yen, the sources said.

China’s on the move again, economic outlook brightens

The BOJ also said it would increase monthly purchases of Japanese government bonds (JGBs) to 9 trillion yen ($67.5 billion) per month from the previous 7.3 trillion yen. The BOJ also slashed its economic growth projections for the next two fiscal years, amid worries slowing global demand will weigh on the export-reliant economy. However, it held its inflation forecast for the continuous linear optimization in pulp python fiscal year ending March 2024 at 1.6%, a sign the board is sticking to the view prices will moderate as the effect of past surges in raw material costs dissipates. “It’s pretty hard to deal with the side-effects when you try to respond after upward risks materialise,” Ueda said, adding that the BOJ wanted to avoid a repeat of the bond market turbulence seen last December.

Tellor price has broken out of leash after almost three weeks of confinement within a bearish technical formation. While perpetual traders anticipated the move, the surge caught some of them, causing a reevaluation of take-profit levels. “When achievement of our target comes into sight, the BOJ’s policy board will hold discussions on an exit strategy and offer communication to markets.” “It’s premature to debate specifics on changing the monetary policy framework or an exit from easy policy,” Kuroda said. The abrupt decision to widen the yield band, rather than wait for the right timing to undertake bolder tweaks to YCC, underscores the challenges the BOJ faces in addressing the rising cost of prolonged easing. Kuroda stressed the move was not a prelude to a bigger tweak to YCC and an eventual exit from ultra-easy policy, sticking to his view that Japan’s fragile economy still needed support.

He is a former CFO with a degree in Financial Management and has been published in both English and Spanish. With over ten years of equities trading experience, he is primarily interested in foreign exchange and emerging markets with a focus on Latin America. The theory that the BOJ operates under is that by surprising the market with changes, it has an increased effect.

It also reflects the broader challenge central banks have faced globally in trying to effectively communicate a shift to less accommodative policy after an extended period of unorthodox monetary settings. While some investors had expected a modest change in the BOJ’s guidance, the announcement shook financial markets which have grown used to years of its ultra-conservative policy. The intervention comes as the Bank of Japan (BOJ) seeks to keep monetary policy ultra-loose, even at the cost of fuelling further falls in the yen currency, which could push up import costs and hurt the economy. Ito said the BOJ will need strong justification to end negative interest rates, as even an increase to zero from -0.1% in the short-term rate target could be interpreted by markets as a first step toward policy normalisation. After all, inflation is above target for the first time in decades with everything pointing to it increasing in the medium term. So, it just might be time for the BOJ to join the rest of the world in considering tighter monetary policy.