SPECIAL REPORT: Ahead Of BoJ January Preview


  • Targeted policy rates to remain unchanged. 
  • Upward revision of GDP growth the focus. 
  • 15bps move implied in USDJPY with 68% confidence.



When will it be released?

No time has been set for when markets get to see the BoJ Outlook Report, Monetary Policy Statement, policy rate decision or BoJ Press Conference. But usually they're released by 2pm AEDT (3am GMT). The longer the wait, the more likely the change. And since this is supposed to be a fairly sedate meeting, we should get it by mid-afternoon Aussie time.
 

What to expect? 

The BoJ's targeted policy rates are expected to remain unchanged at -0.1% and 0.0% (10y yield target) with little risk of deviation. As mentioned initially in our BoJ October Preview, the BoJ will want to save its monetary bullets for negative economic shocks that might surface down the track. It's unlikely we see any hawkish or dovish surprises.

Where risks do lie are in the BoJ's Outlook Report, a potential upwards revision of FY2020 GDP growth is on the cards off the back of Abe's fiscal stimulus package. $120bn of fiscal help and reduced macro risks alleviates short-term concerns that the BoJ will stray from its wait-and-see approach, just yet. 
 

What's priced in?

Market pricing implies a 14% chance that the BoJ undertake a 10bps cut to its short-term policy rate. The rest of the curve is also looking quite flat with only around 1bps of easing priced in till 2020 end. 
 

Reaction?

USDJPY continues to trudge along at 110.17 and rightfully so given little risk of deviation to this announcement. Taking signal from overnight implied USDJPY volatility, option markets suggest a 15bps move to the upside or downside with 68% confidence over the next 24 hours - incredibly subdued trading conditions. I still view USDJPY as a decent macro recession hedge as per our 2020 Outlook, but there have been murmurs that JPY's anti-risk status is slowly fading. 

USDJPY (10 minute candlesticks).
2020_01_21-BoJ-January-2020.PNG
Source: ThinkMarkets, Eikon

USDJPY (Daily bars) with 200d-MA (purple), 55d-MA (green) and RSI (blue).
2020_01_21-BoJ-January-2020-2.PNG

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