Synopsis:
MUFG observes the Bank of Japan's (BoJ) recent policy adjustments, aligning closely with both MUFG's projections and market anticipations that had leaned towards a shift following several news reports hinting at impending action. The BoJ's transition away from negative interest rates, a stance held since January 2016, to a 0.00%-0.10% range marks a significant policy shift. Additionally, the cessation of ETFs and REITs purchases, along with a slowdown in CPs and corporate bonds acquisitions slated to end in a year, alongside scrapping the "inflation overshoot" guidance, underscore a move towards less accommodative measures. Despite an initial 'buy-the-rumour, sell-the-fact' market response, MUFG suggests the BoJ's vague future guidance may limit further yen depreciation.
Key Points:
- BoJ's Rate Adjustment: Transition from negative interest rates to a 0.00%-0.10% range, effective March 21.
- End of Certain Purchases: Termination of ETFs and REITs buying and a gradual halt in CPs and corporate bond purchases.
- Market Reaction: Initial dip in USD/JPY and JGB yields, following a 'buy-the-rumour, sell-the-fact' trend.
- Future Guidance: The BoJ's deliberately vague outlook provides flexibility, potentially curbing excessive yen selling.
Conclusion:
MUFG regards the BoJ's recent policy decision as a pivotal shift towards higher yields and a stronger yen in the medium term, despite the initial market reaction suggesting otherwise. The outcome of the upcoming FOMC meeting could momentarily push USD/JPY towards intervention thresholds; however, the broader implications of the BoJ's transition signify a significant move that aligns with a forecast of strengthening yen values.