Today is the day that 2 much awaited events in central bank policy-making finally occur. The BoJ has aready made its communication, we now await the Federal Reserve later this evening.
No changes on the rate-front from the BoJ, but the Japanese Central Bank announced a number of important fresh changes. The major policy overhaul comes after an internal review of the current policy that failed to deliver a 2% targeted inflation rate.
The BoJ announced it would buy 10-year JGBs in order to to put long term yields close to zero, it also announced that managing the yield curve will take a more important role in its new policy measures. Yield curve control is now a main policy tool.
The BoJ remained comitted to asset purchases until inflation exceeds 2%, but dropped the target increase of its monetary base by 80 trillion yen per year, and also abandoned the maturity range of its Japan government bond purchases. The deposit rate remained unchanged at minus 0.1%.
The USDJPY is up by more than 1% after opening at 101.69 earlier today, we are now trading at 102.58 as the JPY sells off in reaction to BoJ’s sustanined easing plans.
The stage is now set for the Fed, with a rate hike thought necessary to preserve central bank credibility it is now an issue on whether the Fed will choose to do it today or in December. Some disappointing data has shown that it may be prudent to skip September, and policymakers’ communications have clearly shown a divide between the commitee members.
