BoJ Speculation Already Underway
There is still one week to go before the BoJ’s Oct. 30 policy announcement, yet unusually, media speculation has already begun about whether further easing is likely to emerge from the meeting. The timing would certainly seem opportune given (1) new semi-annual inflation forecasts are due to published, (2) inflationary pressures remain extremely weak, and (3) the monthly pace of JGB purchases will fall from January onwards unless adjustments are made to current guidance. On Monday, Reuters reported that a JPY10 trn expansion of the Asset Purchase Program (APP) is under consideration, but the Sankei Shimbun went a step further overnight, reporting that the Japanese government is pushing for a JPY 20 trn boost to the program. If this were to transpire, it would represent the largest incremental increase to APP purchasing targets since the facility was created in 2010. Naturally, USDJPY found a bid on the headlines (and eventually traded up to 80.02) but settled back down again when Finance Minister Jojima denied there was any truth to the report. We doubt USDJPY can see material and sustainable upside without support from higher US yields, and that seems unlikely this side of Wednesday’s FOMC decision – especially given yields failed to react to the last of three US Presidential Election debates held overnight. Ahead today, we expect the BoC to keep its overnight lending rate unchanged at 1.0%. However, a watering down of the explicit tightening bias would seem to be warranted given core CPI has significantly undershot forecasts made in the previous monetary policy report (core CPI was expected to stand at 1.9% y/y at end-Sept whereas it came in at 1.3% instead). Finally, a speech by BoE Governor King’s is due. No title has been released, but it is his last scheduled public engagement before the Nov 8th Bank of England policy decision, and so we can reasonably expect some dovish monetary policy references, which could be marginally sterling-negative.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank