BOJ preview for tonight 19.09.2018

With all that’s going on LDP elections’ side on Thursday, trade talks between Motegi-Lighthizer and Abe-Trump to be confirmed, my personal expectations for any BOJ move are close to zero for tonight. Fin Min Aso seemed to agree overnight saying Kuroda was right not to start talking about an exit before it was close.

Various articles out lately about how BOJ is trapped between endless QE or the risk of derailing the economy, inflation and an unwanted surge in the JPY won’t push Kuroda over the edge to guide us into another widening of the allowed range of JGB yields as of yet, let alone moving on the interest rates. Since the widening of the tradable band, we haven’t seen a test yet of the 0.20% allowed. I don’t see why they would move it.
The best I could see for tonight is to officialise a moderate downscaling of the total amount of assets to bring it closer to reality. BOJ is still running at or below the half of the budgeted amounts.
On the inflation side I don’t think we get more than “we are working towards our goal” either. Abandoning the target seems be to big a hurdle.

If all the above, elections and trade, would go according to plan, that is Abe re-elected, no tariffs, more investments by Japan into the US, possibly also on the infrastructure side, which should come as music into Trump’s administration ears, then I would call the next meetings live for at least some more in depth forward guidance.
I wouldn’t exclude a brief mention about it in Kuroda’s presser if he wants to push forwards guidance that far but that’s speculation.

In the meantime JPY has been under pressure lately from various angles. Trade has at times put a dent into it but I reckon the market looks at Abe getting re-elected and going on the spending spree again to boost youth employment, change the law to transform the Self Defense Force into what resembles more to an army, make children education free and find ways to counter next year’s taxhike from 8 to 10%.
Adding to it are the rumours Japan are ready to do something about the trade imbalance with the US, which keeps the Japanese bourses buoyant.

I’m small long USDJPY from last week and some JPY cross from earlier today, keeping it sensible as one never knows with my my my myyyy Kurodaa. If my expectation about a total BOJ stalemate is correct, I may add some into the LDP leadership election on Thursday, betting on a positive trade outcome regardless of Trump’s calls to present the bill to Japan. He might not have to and would be a tad foolish to press to far against the 2nd biggest investor and now biggest lender in the US.


Stay safe and happy hunting

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