While the Fed will express caution over rate increases on Wednesday,
just prior to that on the same day, the BoJ may well be perceived as
being cautious over easing monetary policy further. The announcement
comes in a holiday-interrupted week with a holiday today and Thursday.
While a few weeks ago, expectations of a key policy announcement were
high, some of that has eased back somewhat.
We continue to see the
BoJ holding off on Wednesday while stressing that policy options for
easing monetary policy remain.Reports suggest the MPC is split with
Governor Kuroda and his deputy Governors leaning in favour of further
rate cuts while others maintain their faith in monetary base expansion
through asset purchases.
Our sense is that market expectations of a
shift away from a stringent asset purchase target is most likely
but ultimately a decision on Wednesday to keep policy unchanged will
merely reinforce the belief in the market that the BoJ is running out of
options and the short-term response will be a further lift for the yen.