MNI BoJ Preview - October 2023: BOJ To Maintain Its Existing Policies, YCC The Focus

EXECUTIVE SUMMARY

• In the most recent Monetary Policy Meeting (MPM) held on September 21-22, the BOJ made the expected decision to maintain its current policy stance. This included the continuation of its more flexible framework for yield curve control (YCC) introduced in July, retention of the 1.0% yield for its fixed-rate purchase operations, and the continuation of its large-scale bond purchases designed to shape the yield curve as needed.
• As for the decision expected this week, our analysis aligns with the prevailing consensus, which foresees the BOJ maintaining its existing policies in the upcoming announcement. This would involve keeping the short-term interest rate at -0.1%.
• Regarding the BOJ's YCC policy, most market participants do not foresee any changes this week, although many hesitate to completely rule out the possibility.
• For proponents of a YCC adjustment, the precise nature of such an adjustment remains uncertain. Some posit that the YCC ceiling will be raised from its current 1.0% to 1.5%. Others suggest the BOJ might opt to increase its 10-year JGB target from the current level of around 0% to 0.25% or even 0.5%.
• While no policy changes are anticipated at this week's meeting, swap market indicators now suggest stronger expectations for the near-term elimination of subzero rates by March than for a further widening of the band around the BOJ's 10-year yield target.
• Full preview here:

BOJ Preview - Oct 2023.pdf