BOJ expected to become more dovish

Tonight’s Bank of Japan (BOJ) rate decision is expected see no policy changes and a downgrade of their assessment of the economy.  The Japanese yen has declined on growing expectations that the Bank will become more dovish; current expectations for tonight’s decision is a 44.4% that the BOJ will cut rates by 10 basis points.

The BOJ can’t ignore the terrible data prints on core machine orders, trade and inflation.  The global economy remains fragile, especially after markets may have been overly optimistic that a trade deal was going to be reached between China and US.

If the BOJ significantly downgrades their outlook that would signal fresh measures will be coming soon.  The question would be will they stick to going more deeply negative with rates, adjust their QQE yield control, or increase their asset purchases.  Fresh stimulus could continue to weigh on the Japanese yen, but the risk aversion risks could keep safe-haven assets like the yen strong.  The BOJ may try to hold off on doing anything and wait and see if see global growth concerns ease over the next couple months.

 

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya