Market Analysis

BoJ Vote Risk: It’s A Numbers Game

The beginning of the trading week sees the Bank of Japan (BoJ) convening for a two-day policy meeting with the outcome to be announced on Tuesday.  So what could forex traders expect to emerge from the BoJ this time. Given that Japan’s central bank has previously “pushed back the timeline for achieving its price stability target to “around fiscal 2019″” Mitsubishi UFJ Morgan Stanley (MUMMS) is looking for the BoJ’s monetary policy committee “to vote 8-1 to maintain the monetary policy status quo.” “That said, policy board member Goushi Kataoka voted against maintaining the status quo at the September meeting,” MUMMS wrote “and he will probably do so again at the October meeting.

At the September meeting, Kataoka expressed the view that “although the year-on-year rate of change in the CPI was likely to increase for the time being reflecting developments in crude oil prices and foreign exchange rates, the possibility of the rate of change increasing toward 2 percent from 2018 onward was low at this point.”” So Kataoka’s minority position is predicated on the fact that in his opinion the BoJ’s already ultra-accommodative monetary stance should be even looser. MUMMS makes the point that last month Kataoka only dissented but did not offer a counter proposal. MUMMS thinks “there is a good chance he will offer a specific counterproposal for further easing at the October meeting when members compile their outlooks for economic activity and prices.” If he does, it’s just possible he may find support for his dissent and the vote could be closer than 8-1. Markets might see such an outcome as yen-negative.

Written by Neal Kimberley, External Currency Analyst.