Bank of Japan Stays Ultra-Loose and Shifts Focus to Governor Ueda

It was a relatively busy Friday on the Asian economic calendar. While there are no stats from Japan or China for investors to consider, the Bank of Japan was in the spotlight this morning.

After a hawkish Fed pause, the markets were betting on the BoJ to persist with its ultra-loose monetary policy stance. Economists forecast the BoJ to leave interest rates at -0.10%.

The Bank of Japan didn’t disappoint, holding interest rates unchanged at 0.10% and maintaining the 0% cap on the 10-year bond yield that falls under the Bank’s yield curve control (YCC) policy.

While staying ultra-loose, the markets are expecting tweaks to the YCC policy. The hold on interest rates will shift the focus to the Bank of Japan press conference and BoJ Governor Kazuo Ueda. Views on the economic and inflation outlook and policy tweaks will move the dial.

USD/JPY Reaction to Bank of Japan Decision

Ahead of the Bank of Japan’s interest rate decision, the USD/JPY fell to an early low of 139.850 before rising to a pre-statement high of 140.776.

However, in response to the BoJ policy decision and statement, the USD/JPY rose to a post-statement high of 140.698 before falling to a low of 140.385.

This morning, the USD/JPY was up 0.19% to 140.518.

Next Up

Later this morning, investors should consider the Bank of Japan press conference. After holding interest rates steady, Bank of Japan Governor Ueda will be in the spotlight. The Bank’s commitment to stay ultra-loose and inflation outlook will be likely focal points.

Looking ahead to the US session, it is a relatively quiet day on the US economic calendar. Prelim Michigan Consumer Sentiment and Expectation figures for June will be in focus. After mixed numbers on Thursday, the Consumer Sentiment and Expectations Indexes would need to improve markedly to influence the Fed.

A pickup in consumer sentiment would suggest higher demand for goods. Increased demand, following the uptick in retail sales in May, could translate into a more hawkish Fed.

With the US economic calendar on the light side, Fed chatter will draw interest. FMOC members Bullard and Waller are among the first to speak after the end of the Fed blackout period.

According to the CME FedWatch Tool, the probability of a 25-basis point July rate hike stood at 67.0% on Thursday, up from 62.3% on Wednesday.