Summary:

• Bank of Japan leaves all interest rates unchanged as widely expected, some tweaks to its monetary policy settings implemented
• BoJ cuts inflation forecasts, yields move down, JPY nudges a bit lower
• Some macroeconomic releases coming out during Asian hours trading

As widely expected the Bank of Japan maintained its monetary policy unchanged offering some small changes elsewhere. The bank informed it will make its policy framework more flexible for the long-term yield target, but it was kept untouched at around 0%. Moreover, monetary authorities are to reduce the amount of bank reserves subject to its negative interest rate which might be viewed as a tiny hawkish signal. The bank decided to also add forward guidance for interest rates underlining that it intends to keep the current low levels of short and long-term rates for an “extended period of time”. In terms of the 10Y yield the bank admittedly kept this goal unrevised, but at the same time it decided to offer more flexibility highlighting that “while doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.”

The Japanese 10Y yield moved down following the BoJ’s decision. Source: Bloomberg

Basically, this is the end of somewhat more hawkish remarks. In addition to above the bank chose to cut its inflation projections once again albeit it should be so surprising as we had been offered rumours that the bank would do so at the beginning of July. For the 2019 fiscal year it sees core consumer prices increasing 1.5% (down from 1.8%), for 2018 to 1.1% (1.3%) and for 2020 to 1.6% (1.8%). As you can notice the Japanese central bank does not expect the inflation rate to strike the desirable level even until 2020. Assuming that the bank tends to slash its forecasts repeatedly one may suppose that these estimations might be revised down too. Some market pundits might be disappointed with these remarks offered by the Japan’s central bank, however, given that there have been almost no inflationary pressures building up in the domestic economy as of yet, nobody ought to be taken off-guard. In response to the decision the Japanese yen tumbled initially but erases part of losses afterwards. As of 6:50 am BST it is trading at 111.20 whereas the 10Y yield is trading subtly above 0.06% down from above 0.11% prior to the announcement.

The short-term technical view indicates that the pair could be continuing to climb toward 111.50 where the local resistance might be identified. Note that the pair bounced off the support nearby 110.8, then spiked after the BoJ’s decision. Source: xStation5

Beside the Bank of Japan one needs to mention some other macroeconomic releases. Among the most important ones we had the Japan’s jobless rate which rose to 2.4% from 2.2% while the labour force participation rate held unchanged at 61.7%. On the other hand, the job-to-application ratio ticked up again to 1.62 to 1.60 suggesting there is getting more job offers per application. On top of that, Japanese industrial output for June (preliminary) disappointed coming in at -1.2% while the market consensus had indicated at a 0.6% increase. From China we were offered manufacturing PMI sliding negligibly to 51.2 in July from 51.5 while from the Australian economy we got encouraging prints concerning building approvals for June as well as private sector credit data which came in line with expectations. Overall, the Aussie benefited from the data gaining as much as 0.3% against the US dollar this morning and being by far the best performing major currency.

From a long-term prospect one may envisage the pair to rise as it’s been unable to break down its crucial support at 0.7320. However, the first major hurdle might be already localized around 0.7445, and it has to be broken in order to let the price climb toward 0.75 and possibly beyond. Source: xStation5