Summary:

• Bank of Japan concluded its monetary policy meeting
• Rates and policy remain unchanged, which is in line with what was expected
• BOJ upgraded its growth projections while lowering inflation forecast

The Bank of Japan held monetary policy steady at the conclusion of its July monetary policy meeting, an outcome widely expected by financial markets and economists.It also upped its economic assessment and forecasts for GDP growth while downgrading its view on the outlook for inflation. 

As was the case when it last met in June, the board voted 7-2 to retain its quantitative and qualitative monetary easing with yield curve control program, keeping interest rates unchanged at -0.1% while pledging to purchase Japanese government bonds so that 10-year JGB yields will remain at around zero percent.

While it made no changes to monetary policy, the bank did make several changes to its economic forecasts. On the outlook for GDP, it now expects it to grow by 1.8% in the current financial year, up from 1.6% in its previous forecasts offered in April, with growth in FY 2018/19 now seen at 1.4%, up from 1.3% forecast previously. It’s forecast for FY 2019/20 was unchanged at 0.7%. As a result, it upgraded its assessment on the domestic economy, describing it as “expanding moderately”. Previously it described it as “turning toward a moderate expansion”.

  BOJ lowered its inflation forecasts, while rising growth outlook. source: Bank of Japan

In contrast, despite expectations for faster economic growth, it downgraded its forecast for core CPI in the years ahead. In the current financial year it now sees core inflation, that which excludes fresh food prices, at 1.1%, below the 1.4% level it forecast three months ago. For FY 2018/19 it’s expected to lift to 1.5%, down from 1.7% seen previously, with that for 2019/20 tipped to accelerate to 1.8%. That too was below the 1.9% pace seen previously, and still short of the 2% level it targets.

Given those forecasts, the BoJ pushed back the expected timing of when it will hit its 2% target to 2019/20. Previously it saw that occurring in the 2018/19 financial year. That should limit expectations of an imminent policy change in Japan, which should weigh on the JPY. While the currency could still gain to the USD on bleaker outlook for the dollar, it should lose to currencies such as: AUD, EUR, CAD. 

USDJPY remains in the short-term downward trend. The pair could be on the verge of forming a double top-pattern, but it needs a break below 110.00 to confirm the long-term bearish scenario. As for now USDJPY rebounds from a minor support at 111.50 and the correction could extend to 112.50-112.80.

USDJPY remains in the short term downtrend, but the long term outlook is still to be decided.