BoJ cuts rates to negative, more easing expected – UBS

By FXStreet FXStreet (Córdoba) – The Bank of Japan (BoJ) announced a surprise shift to negative interest rates on excess reserves (IOER) following its January policy meeting even though BoJ Governor Haruhiko Kuroda had previously dismissed such a move. According to the UBS analyst team, the BoJ message renewed the dovish tone and they recommend to overweight the USD against an underweight position in the JPY

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“The USDJPY there upon spiked above 121, before retreating slightly to a current trading level of 120.5. The equity market also rallied on the news by around 3%. We anticipate more easing to come from the BoJ in coming months; hence we are targeting a USDJPY of 127 on a 3–6 month basis.”

“So what has the BoJ done? First, it cut IOER by 20bps, to –10bps from +10bps. The quantitative and qualitative easing program remains unchanged, continuing with Japanese government bond (JGB) purchases at a rate of JPY 80 trillion per year, with ETF and REIT purchases as scheduled. Second, the BoJ did not introduce a lower bound for JGB yields on its purchase operations. Third, it introduced a three-tier system on the IOER, which is clearly better for risk sentiment, since it can offset …read more

Source:: FX Street