Rates: markets are pricing in a close to 91% chance of a
hold from the bank (close to 10% chance of a hike) – quite surprised that it
isn’t 100%.
The recent trend in economic data has been mostly
disappointing, with the Citi Economic Surprise Index for Japan showing a
consistent string of downside surprises for Japanese data over the past two
months.
This trend makes additional hikes a tricky affair for the
bank.
Bond purchases: last week there were source reports via
Nikkei which suggested that the BoJ will consider scaling back their monthly
bond buying of 6 trillion yen.
It’s unclear how much of a consensus view a bond purchase
adjustment is for today’s meeting, but rough estimates from those who think an
adjustment is likely is looking for a reduction of roughly 1 trillion yen.
With some participants expecting an adjustment, it means any
decision from the bank not to follow through with it could trigger some JPY
weakness, while a number bigger than 1 trillion would be needed to surprise on
the hawkish side (and possibly support the JPY via upside in yields).
The bank will probably convey and tweak as a
slight adjustment and will arguably still maintain their view that ample
monetary policy accommodation remains necessary.