BoJ: could we have expected more?
With a relatively light economic calendar so far this week, the BoJ’s monetary policy decision overnight stands out as a major event. As always, the divisive monetary policy approach taken in Japan led to debate over whether a change of course will be offered. Hopes that the new governorship of Kazuo Ueda could change the shape of Japanese monetary intervention continue to fade. To recap the situation in Japan: even in the years prior to the pandemic, interest rates in Japan have been staggeringly low. An economy that has typically been plagued with low (often negative) inflation and growth has been reluctant to tighten monetary conditions. It has been defiant in its pursuit of ultra-loose policy despite the market’s frequent efforts to push back against its policies.
With the latest inflation reading coming in weak once again, any hopes of the overnight decision abolishing some of Japan’s controversial monetary controls seemed unlikely. The key policy in focus in Japan is not one of the typical monetary tools. It is its yield curve control policy toolkit whereby the BoJ sets levels to control lending rates beyond the central bank’s overnight deposit or lending rates. By capping the level at which certain debt expiries can trade, the BoJ artificially suppresses open market borrowing rates. Despite the weak inflation read, there will always be expectations for the BoJ to unwind this policy. However, those expectations seem overly optimistic, and we must conclude that yield curve intervention is here to stay.
As well as not touching the yield curve control policy, the Governor’s comments overnight were familiarly dovish. Commitments to take further action to loosen policy should inflation fall further were not hard to identify. The dovish tilt had initially pushed USDJPY higher once again with the move not proving sustainable in overnight trading hours. Ultimately the decision to hold rates and a dovish twinge to the press conference should continue to support USDJPY and other Yen crosses.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – A weaker Dollar: Trump vs. Powell
Charles Porter
Thu 26 Jun 2025
A weaker Dollar: Trump vs. Powell The Dollar continued to lose ground yesterday as the truce between Israel and Iran appeared to continue to hold. There has been a noticeable return to focus upon macro and monetary influences in major currency pairs. Yesterday, Fed Chair Jay Powell provided his semi-annual monetary policy report before the […]
Daily Brief – Next level
Charles Porter
Tue 1 Jul 2025
Next level EURUSD has managed a relatively smooth ascent to its current levels, around 1.18. That is despite significant resistance levels, most notably around 1.17. A large collection of option strike prices gathered around this key level and the price history of the pair shows us its significance. Sustained closes above this level since last […]
Daily Brief – Whiplash
Charles Porter
Tue 24 Jun 2025
Whiplash A highly volatile start to yesterday’s trading session saw a flight to safety in markets. Despite the Dollar having lost much of its appeal as a safe haven lately, there was still an identifiable USD bid prior to and during the European open. We have identified recently how markets have clearly differentiated between general […]
