While there is no expectation of policy action out of the BOJ meeting today, the market will be watching the forecast for inflation very closely. The BOJ want to achieve 2% inflation as soon as possible , but today we expect them to put a time frame on hitting that target.
While it is widely thought that hitting the target in 2 years is not a reasonable expectation, if the BOJ does announce ‘2 years’ then it may indicate there are further policy measures in the works yet to be announced. If the BOJ announces ‘3 years’ as the target date, it should be seen by the market as a more reasonable expectation, and that the BOJ is more dredible, but that there may not be other policy measures currently being considered.
To me it seems that whichever way the BOJ goes in its announcement, the announcement will be a catalyst for yen volatility – and I expect that moves will be skewed to testing 100.
