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Last Update: 14-Jun-18 12:00 ET
Looking Ahead - June 15, 2018 - Bank of Japan Policy Decision (EWJ)
The Bank of Japan will round out a big week of central bank news when it announces it latest policy decision tonight. That decision is apt to serve as a reminder of how different its policy glide path is from the Federal Reserve.
Bank of Japan Policy Decision (Thursday, June 14, 10:00 p.m. ET)
- Why it's important
- The BOJ is expected to stand pat with its current policy prescriptions. Any change in its policy approach would be considered a surprise.
- The decision to keep policy rates and the asset purchase program unchanged will offer a fresh reminder that the Fed and the Bank of Japan (BOJ) are on different policy glide paths
- Economic growth in Japan has improved, although consumer inflation has been slow to follow. Market participants will be seeking assurances that the BOJ isn't going to risk cutting off the nascent recovery effort by tightening its policy too soon.
- If BOJ Governor Kuroda communicates poorly at his press conference about the bank's policy approach -- and how it could manage future shocks or potentially become less accommodative -- he could instigate a strengthening in the yen, which would be a negative factor for Japanese exporters and, presumably, Japan's stock market
- A closer look
- At its September 2016 meeting, the BOJ introduced "QQE with Yield Curve Control," which is a policy framework with two main components:
- Yield curve control oriented around maintaining the short-term policy rate at -0.10% and purchasing Japanese government bonds so that the 10-year JGB remains more or less around 0.0%
- Continuing to expand the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds the price stability target of 2% and stays above the target in a stable manner
- The BOJ uncollateralized overnight call rate was maintained at 0.10% from December 2008 to January 2016 when the decision was made to drop it to -0.10%.
- At the April 2018 meeting it was decided, by an 8-1 majority vote, to maintain the overnight call rate at -0.10% and to purchase Japanese government bonds so that the 10-year JGB yields will remain around 0%. In a unanimous vote, it was decided to purchase ETFs and J-REITs so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively
- At its September 2016 meeting, the BOJ introduced "QQE with Yield Curve Control," which is a policy framework with two main components:
- What's in play?
- Japan ETFs
- iShares MSCI Japan (EWJ)
- Japan Hedged Equity Fund (DXJ)
- MSCI Japan Hedged Equity Fund (DBJP)
- Currency Hedged MSCI Japan ETF (HEWJ)
- Regional ETFs
- iShares China Large-Cap (FXI)
- iShares MSCI South Korea Capped ETF (EWY)
- iShares MSCI Taiwan ETF (EWT)
- MSCI Australia ETF (EWA)
- iShares MSCI Singapore ETF (EWS)
- MSCI All Country Asia ex Japan Index Fund (AAXJ)
- Currencies
- USD/JPY
- EUR/JPY
- Japanese Government Bonds
- Treasuries
- S&P futures
- Japan ETFs
