Dovish Hold

The BOJ delivered arguably a dovish hold today. The central bank kept all the policy parameters unchanged. The policy rate stays at -0.1%, 10yr yield target around 0%, with a -/+0.50% band on this and firm cap at 1.0%, which was introduced at the last policy meeting in July. Forward guidance was also unchanged, with the central bank maintaining its easing stance until the 2% inflation target is achieved in a stable manner. It will also not hesitate to take additional easing measures if necessary.

• The central bank described the economic recovery as moderate and expects it to stay that way. Pent up domestic demand is a positive, but slowing external conditions are a downside risk the other way.
• CPI y/y (ex fresh food) is expected to moderate further as pass through from higher import costs are expected to wane. Beyond this, price pressures are expected to accelerate modestly, as the output gap improves and longer term inflation and wage expectations firm.
• The BoJ noted extremely high uncertainties regarding both the economic and price outlook. This reflects overseas demand, commodity prices and domestic price and wage setting behavior. The BoJ noted that this backdrop meant attention needs to be paid to developments in financial and FX markets and their impact on Japan's economy and inflation.
• Focus now shifts to Ueda's press conference, (3:30pm Tokyo time, 07:30 BST), particularly in light of his recent media interview, which came across as hawkish, but the ruling party pushed back on this notion (see this link for more details).