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Monetary policy on hold
With an 8-1 vote, the BoJ had opted to keep monetary policy steady, in line with expectations. On one hand, the broadly positive economic outlook was regarded to render the current stimulus as adequate. On the other hand, inflation remains a distance from their 2 percent target, though the central bank reiterated their conviction that no additional accommodation may be required for inflation to accelerate to target.
What had caught the market by surprise had perhaps been the lone dissenter, newly appointed board member Goushi Kataoka’s vote. While it is widely expected that the economist would stand up against a premature exit, the press for greater stimulus in the pursuit of inflation goals had probably not been within anticipation. Certainly, this is a change from the dissenters since 2014, who had typically fallen on the hawkish end against the aggressive monetary stimulus. More importantly, this represents a slight tilt towards the dovish side amid the press for tightening by most advanced economies’ central banks.
For the JPY, this could mean an extended period from which the currency would be free from domestic monetary policy influences. Some focus had been alluded to the upcoming snap election called by Prime Minister Shinzo Abe from the monetary policy end, seeing as the election will be a vote of confidence on ‘abenomics’ and the ultra-loose monetary policy. Perhaps timely, the rebound in PM Abe’s approval rating might just be the reinforcement needed, one to watch on 22 October, the expected voting date. For the time being, it might be a slow grind for monetary policy, tracking inflation progress. The indicator itself, remains one that may not espouse much surprises.
Despite the absence of monetary policy changes, the JPY had not been a stranger to fluctuations of late. The oscillating risk sentiment and shifting monetary policy outlook, particularly from the Fed, had kept JPY pairs on the move. While risk sentiment surrounding North Korea had dealt frequent blows to USD/JPY, the uncertainty surrounding the matter makes it one that is tough to estimate. Compared to gold prices, the proximity of the country makes this choice of safe haven a confounding one, keeping a floor to the dips at around $108.
Meanwhile, monetary policy views from advanced economies may be one that could drive moves in JPY pairs into the end of the year. Using USD/JPY as an example, the short-term hawkish views from the September Fed meeting may be one creating upward pressure for the currency pair. With the BoJ determined to maintain yield-curve control, targeting 10-year bond yield, the expected rise in US yields from an interest rate hike places the bias on the upside for USD/JPY. Similarly, tightening expectations by the Bank of Canada (BoC) and Bank of England (BoE) makes CAD/JPY and GBP/JPY ones to keep a lookout for. Watch for moves towards the resistance at $114.37 for the USD/JPY into the year end, bearing in mind downtrend resistances.