JPY: Trading The BoJ - Views From 10 Major Banks

The following are brief expectations for today's BoJ September policy statement as compiled from the related research reports of 10 major banks.  

Overall, the consensus expects the BoJ to maintain its policy unchanged.

On the JPY front, the consensus seems to see the meeting as a non-event with a limited impact on JPY. 

TD Research: It is widely seen to leave policy unchanged but the immediate focus is whether the bank may consider dropping the reference to the JGB purchase level of JPY80tn. Indeed, it is the one year anniversary of YCC and many investors are keen on the next steps. This partly reflects the potential that the JPY might be one of the next dominoes to fall in the sequence to convergence. Notably, JPY is still one of most the undervalued currencies in the G10 and the BoJ is maintaining extreme levels of policy accommodation.  It is also worth noting that growth is currently running about four times the 10yma of 0.6%. 

Barclays Research: The BoJ (Thursday) is widely expected to maintain its policy unchanged unanimously. Since it will not publish the Outlook Report this time, the MPM will likely have limited market effect, but that from the replacement of two resigned hawkish members (Kiuchi and Sato) with neutral Suzuki and dovish Kataoka on monetary policy discussions will be watched. 

Credit Agricole CIB Research: Our economists expect the BoJ to make no changes to its policy parameters next week and to keep its IOER and the 10Y JGB yield guidance at -0.10% and 0%, respectively. They also expect the BoJ to keep its formal target of JPY80trn expansion in the monetary base. Importantly, next week’s meeting will be the first for newly appointed members, Goshi Kataoka and Hitoshi Suzuki, both considered doves. They replace Sato and Kiuchi, who were both hawks and strong opponents of the large-scale purchases of JGBs. Therefore, there should be no dissenters in next week’s decision. We do not think that the dovish makeup of the BoJ Board will be important for markets until well into the future, when the Board begins considering tightening policy; then this make-up could lead to the Board being behind the curve.

Morgan Stanley Research: We are generally bearish on JPY, which should underperform the rest of G10 save for CHF. ..We expect the BoJ to maintain its yield curve control framework, which should lead to lower real yields and in turn continued foreign investment flows and JPY weakness.

Deutsche Bank Research:  We do not anticipate any big policy changes at this week's MPM, but our economists have suggested that the removal of the ¥80trn figure or a switch to a ¥60-80trn range would be realistic and desirable.

BofAML Research: We expect the central bank to leave policy on hold, keeping its targets for rates and risk asset purchases unchanged. Fundamentals do not justify a BoJ move in either direction. Though the economic recovery has been solid, inflation is still weak and largely driven by energy prices. With no policy change expected, market participants will likely focus on the voting behavior of two new board members, Suzuki and Kataoka. We expect them to vote in favor of the status quo, resulting in the first unanimous (9-0) policy decision in nearly three years. 

RBC Research: BoJ policy is now effectively in a holding pattern as we await the election. Reports continue to suggest he is likely to do so in the coming days. An early election and a returned LDP government would increase the probability of Kudoda remaining BoJ Governor for another five years and as such would be JPY-negative. 

Danske Research: We expect it to keep its ‘QQE with yield curve control’ policy unchanged. It is widely expected that the BoJ stands pat this time and the announcement should not have any significant impact on price action.

BTMU Research: A look at inflation expectations in Japan, which have declined steadily this year is a clear indication of the scepticism markets now hold over the ability of BoJ monetary policy to lift inflation...This week the September BoJ meeting is unlikely to shake USD/JPY.

NAB Research: Today is the BoJ, recent outcomes mostly rather pedestrian ones for the market.  But remember, the BoJ is hoping the Yen (the USD) will aid their effort to inject some price reflation into the economy while “Yield Curve Control” is aimed at restricting yields to about zero.  It remains to be seen whether Fed policy will be a hindrance or a help, US inflation readings doubly important.  Governor Kuroda could be questioned on the Fed and BoJ implications at his press conference.  And there are two new MPC members too.  Dissent?: possible, but unlikely.