HSBC On Today’s BOJ Decision

HSBC expect the Bank of Japan "to leave its policy setting unchanged, with its policy balance rate at -0.10% and 10y Japanese Government Bond (JGB) yield target at "around" 0.00% +/- 20bps. The Bank's broad-based monetary easing options are limited as the current negative rate regime is non-binding constraints for many commercial banks and limits the pass- through effect of a rate cut. As such, the focus is on the Bank's open market operations to support financial markets, with the Bank's balance sheet continuing to expand. Indeed, the BoJ's assets were up JPY110.2trn y-o-y in August, at a much faster rate than an average JPY70.8trn in Q2 20 and JPY30.6trn in Q1 20. This is mainly driven by short-tenor operations of T-bill purchases and loan provisions, while the JGB purchase pace remains largely unchanged."