Bank of Japan preview: policy stance expected to remain

The Bank of Japan (BoJ) is set to hold its monetary policy meeting from 17 - 18 June 2021, with policy expected to remain unchanged as economic recovery from Covid-19 continues.

BoJ expected to maintain accommodative monetary policy stance

Consensus expectations point to the BoJ’s policy stance being largely unchanged in the upcoming meeting. This includes keeping in place its target of -0.1% for short-term rates and 0% for the 10-year bond yield, under its negative interest rate policy (NIRP) and yield curve control (YCC). The upper limit of ETF purchases may stay at about 12 trillion yen, as a market-stabilising measure in the event of unwanted volatility.

Although Japan’s core inflation has been presenting smaller decline year-on-year (YoY) over the past four months, April’s figure of -0.1% remains far below the central bank’s inflation target of 2%. This suggests that accommodative monetary policies are set to remain for the foreseeable future, as the BoJ expects core consumer inflation to hit 0.8% in 2022 and 1.0% in 2023. Inflation has barely picked up in the country despite supply bottlenecks and higher commodity prices, raising inflation concerns in other major economies.

Risks to the economic outlook may remain, despite declining Covid-19 cases in recent weeks. With just 4.3% of the population fully vaccinated, the upcoming Olympics, summer vacation and ongoing restrictions easing may pose increased risks of virus spreads ahead. Restrictions in place have particularly weighed on the recovery in the services sector, which is still trending in contractionary territory as domestic consumption cools.

Investors may be on watch in the upcoming meeting on whether the BoJ proceeds to extend the September deadline for its Covid-19 lending programme, a largely anticipated move based on estimates to support ongoing economic recovery. That said, its main policy levers are expected to remain on hold as the battle with the pandemic continues.

USD/JPY on hold ahead of FOMC meeting

The USD/JPY seems to be trading within an ascending channel pattern, with near-term uptrend denoted by higher price highs and higher price lows since April. US consumer inflation came in at its 13-year high for May but a fall in US 10-year yields in reaction suggests that the bond market is buying into the Fed’s stance of inflation being ‘transitory’. Lower yield differentials from softer Treasury rates may have resulted in the currency pair delivering muted action over the past week.

Ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday, the movement of the currency pair lies in various conflicting factors. Discussion about tapering may potentially be brought up during the Fed meeting and any hawkish shift in policymakers’ stance may support the US dollar. However, the slightest mention of tapering may also potentially drive risk-off sentiment among investors, leading the yen higher in its role as a safe-haven asset. This makes the direction for the currency pair highly uncertain in the near-term.

That said, based on technical perspective, one may potentially trade the ascending channel pattern until a breakout in either direction occurs. Base support may be at 109.3, while resistance may be at 110.7 based on the lower and upper trendlines of the channel.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Related articles

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.


IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Please see important Research Disclaimer.