The Bank of Japan (BoJ) kept its policy settings and forward guidance unchanged. Nonetheless, there was an outside chance that the Bank would widen its Yield Curve Control (YCC) band and/or shift the target of YCC to a lower maturity. JPY reacted negatively (falling around 1% vs USD). This outcome keeps the door open to further JPY declines ahead, economists at TD Securities report.

The lone dove

“BoJ maintained its policy balance rate as expected, but doubled down on its YCC, countering some speculation that it would widen the band. The outcome highlights that BoJ is far away from any shift in policy settings in terms of YCC targeting, let alone its policy rate.”

“BoJ inflation forecast was revised higher but it maintains that any increase in CPI above 2% will be temporary.”

“BoJ inaction keeps door open to further JPY declines. We view 135+ as a formidable line in the sand.”