Thursday's BOJ announcement may solidify the notion that central banks with negative or nearly negative policy rates are nearly out of room to lower borrowing costs further, leaving the Fed as one of the few with room to ease if global growth doesn't rebound.
Only 3.7bp of easing is priced in for Thursday's BOJ, despite September's core CPI slipping to 0.3% y/y and the composite PMI in contraction at 49.8.
BOJ's Kuroda claims the BOJ can still lower rates, but the BOJ's also warned about risks from low rates nL3N27928S, concerns reinforced by S&P nL3N27E0VG.
Recent USD/JPY and Treasury yields gains on signs of de-escalating U.S-China trade tensions may be guiding Japan Post and others to trim JGB holdings and FX-hedged foreign bond holdings, while increasing unhedged foreign bond holdings nL3N27D0BM.
This strategy will work as long as U.S. rates continue to slowly recover along with stocks and other yen-funded carry trades, the bulk of which depend on trade war progress by the Nov.
16-17 APEC nL2N27E0TD and before planned Dec.
15 U.S. tariff hikes.
If that happens, USD/JPY's downtrend from 2015 can reverse nL2N27D0QP.
If trade deal hopes are dashed, USD/JPY longs and carry trades will suffer and the Fed's rates cuts will persist nL2N27E0HG.