Not for the first time, the BOJ spite the hype (presser pending…)

At their January 2023 meeting, the BOJ:

• Held interest rates at -0.1%
• Maintained a target for 10-year JGB at ‘around’ 0% (with +/- 0.5% band)
• Members voted unanimously to hold policy
• Played cards (unconfirmed)

Outlook for economic activity:

• Japan’s economy is likely to recover towards the middle of the projection period
• High commodity prices and slowdowns with overseas economies to keep downwards pressure on the economy
• CPI (all items less fresh food) likely to remain relatively high over the near-term
• Inflation expected to decrease around the middle of FY 2023
• Projected growth rates for 2022 and 2023 are somewhat lower than previously forecast

I’ve said it before, and I’ll say it again. The BOJ never go with the consensus expectations of their own meetings. If there are high expectations to act they tend to nothing, then surprise markets with a sudden change of policy when no expectations exist.

Despite the hype – and to possibly spite the hype – they left their YCC target band unchanged, let alone tweak it or scrap it. They held interest rates at -0.1% which, to their credit, was expected, yet did not switch to an inflation target range as I had suspected. The biggest change I can see is they expanded the range of ‘eligible parties for the climate change funding scheme’, so overall a nothing burger ahead of the press conference.

Perhaps the bigger surprise is that there were no dissenters, so all were on board with keeping policy unchanged at this meeting. It may even pour cold water on the expectation that Kuroda has any intention of wrapping up some of his policies before his successor takes the helm in April. So that leaves either an unscheduled policy change like we saw earlier this month, or Kuroda intends to go out with a bang at his last meeting on March 10^th.

Yen and Nikkei rallies, JGB yield rolls over

We’re still waiting for the press conference, so perhaps they have a trick up their sleeve. But right now, we’re seeing a broad weakening of the Japanese yen as those pre-emptive bets of a hawkish meeting run for cover.

This also saw the 10-year JGBP yield plummet as its underlying price soared due to the dovish meeting. On that metric the meeting has been a success, as the BOJ would like to see lower yields. So, it is now over to the press conference which is expected to be at 17:30 AEDT – but if nothing new is added, we suspect the yen will continue to weaken (USD/JPY bullish) and the Nikkei rally.

Nikkei 225 weekly chart:

As noted in our recent livestream, the Nikkei has been trying to carve out a triple bottom around the 200-week EMA. Since then, we have seen a strong rally from its base and now on track for a bullish engulfing week. Given its reluctance to break below 25,500, I suspect it is now headed for gap resistance around 27,400 irrespective of fundamentals. It could then be a case of drilling down to lower timeframes for bulls to find suitable entries to fit their criteria.

AUD/JPY daily chart:

The Aussie yen looks interesting around current levels, particularly if we get a daily close around or above 92.00. Today’s bullish candle is trying to close above the 200-day EMA, 90.89 – 91.43 resistance zone and trend resistance. Of course, today’s press conference could send this sharply lower with a hawkish bazooka, but if that does not arrive then the path of least resistance may be higher.