During today's trading session on APAC markets, investors' attention was primarily drawn to the BoJ's monetary policy decision. The meeting itself was anticipated, since yesterday in the morning hours in the US Nikkei agency announcements were made that the Bank of Japan intended to make changes in the upper band of possible deviations in the yields of 10-year Treasury bonds.
Following today's decision, Japan's yield limit has been transformed into a kind of reference rate, with the Bank of Japan redefining its 1% yield limit on 10-year Treasury bonds as an "upper limit" rather than a rigid target. This systemically remains in the 0% zone all the time under yield curve control (YCC).
After yesterday's speculation, the market saw the possibility for the upper band to be extended to 1.25%, instead the 1% limit was formalized, which was met with disapproval in the eyes of investors, the sell-off in the Japanese yen has been progressing since the decision and accelerated after Ueda's comments.
From now on, the BoJ will treat the 1% cap on 10-year JGB yields as a benchmark in its market operations.
Inflation forecasts raised:
- Core CPI inflation forecast at +2.8% in 2023, up from +2.5% in July
- Median core CPI inflation forecast for 2024 at +2.8% vs. +1.9% in July
- Median core CPI forecast for 2025 at +1.7% vs. +1.6% in July
- Median real GDP forecast for fiscal 2023 at +2.0% vs. +1.3% in July
- Median real GDP forecast for 2024 at +1.0% vs. +1.2% in July
- Median real GDP forecast for 2025 at +1.0% vs. +1.0% in July
The BoJ continues to maintain loose monetary policy, but between the lines the new tools being implemented and the raised CPI forecasts suggest that in the longer term the Bank will move away from current policy and turn more towards tighter measures.
The Japanese yen, however, lost dynamically today and is now the worst performing G7 currency. The cross against the euro has climbed above recent local peaks and the pair is currently trading at its highest levels since 2008.
Source: xStation5
