Bank of Japan meeting: watching QE commitment

In the Covid-19 shortened meeting on Monday, the BoJ is expected to keep rates unchanged. The focus will however be the positioning of their stance with further bond purchases and the update of their economic outlook.

While central banks around the world lowered rates into March as the Covid-19 implications struck the globe, the BoJ with their limited room had maintained the negative interest rate policy at -0.1% for short-term rates amid their its curve control (YCC) policy. This may well remain the case as Japanese lenders and borrowers alike find little further incentives to increase risk taking with any deeper cut in interest rates.

That said, the profound and protracted hit to the Japanese economy with Covid-19 as Japan extended its nationwide state of emergency in April and looks to further extend it this week continues to invite the BoJ to commit to further quantitative easing. With news from Nikkei Asian Review suggesting potential unlimited government bond buying from the current 80 trillion-yen cap, the BoJ may signal to the market Fed-style the unconditional support here. Given that the on-going JGB purchases fall well below the level, there are little expectations for the upcoming announcements to be market moving at present.

Meanwhile, the outlook report will also be in focus with the dated January update having previously reflected a median forecast of moderate 2020 growth at 0.9% year-on-year. This figure is long due for a revision, but the extent of the decline may well remain a rough gauge amid the on-going uncertainties.

USD/JPY externally influenced

USD/JPY can be seen trading rangebound around 107.50 levels into the fresh week and making no clear deviations from the triangle pattern. Risks are nevertheless tilted to the downside watching other leads including the expectations for risk aversion interest to sustain as we dive deeper into the US earnings season, while month-end US dollar selling may also be noted this week after seeing the surge in US market in April.

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