Report: Expectations from BoJ Policy Rate on Tuesday October 31st

October 25, 2017

A view on October's interest rates.

Report: Expectations from BoJ Policy Rate on Tuesday October 31st

This article is originally referred from FXPrimus Special Reports

In the latest July 20 policy announcement, BoJ left rates steady and it seems that Abe’s recent national electoral win paves the pathway for a persisting ultra-loose monetary policy.

While the Japanese economy grew by 0.6% quarter on quarter, inflation remains stubbornly lower than its extraordinary 2.0% target and still far from the 1.0% expectation.

At this rate, it’s now the sixth time that BoJ pushes back the projected timing for reaching its inflation target. Japan’s GDP growth back in June was the strongest since Q1 2015 as a result of BoJ’s decision to introduce a policy framework in February 2016.

A framework that imposes negative short-term interest rates at -0.1% and the 10-Year Bond Yield near 0.0%.

Since then, the Japanese 10-Y JGB interest rate fell from 0.45% to 0.07% today while inflation plummeted from 2.60% in February ‘15 to 0.5% in August ’17, albeit, at a 29-Month high.

With Abe winning the elections BoJ is likely to maintain its ultra-loose policy and keep offering negative yields.

In return, Japanese capital will keep seeking for higher returns elsewhere but Japan and that way Japanese investment in foreign countries will help sustain global interest rates, whereas, Japan could perhaps remain a source of capital exports.

In September, Japan’s Exports rose by 14.1%, although, lower than the 14.9% expected. This marked the 10th consecutive increase mainly boosted by exports in cars.

It’s probable that the receipt of export proceeds will allow Abe to push his consumption tax reform soon and stimulate government spending.

Thus, it is plausible that consumer spending and economic growth expand but this could be in return for Yen as the negative yields and aggressive monetary easing are still in play.

With consumer confidence being below the long-term average of 42.14 since August 2015 and an all-time high government debt to GDP ratio of 250.40, with a forecast for 2021 of 251.70%, Yen is likely to remain under pressure in the near-medium term.

That assumes no geopolitical tensions.“ Stavros Tousios, FX Market Specialist. This special report is provided as general market commentary and does not constitute investment advice.

Original Source: FXPrimus Special Reports

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