Barclays expect an end to BOJ negative interest rates. What it means for the yen.

Author: Eamonn Sheridan | Category: Central Banks

A research note from Barclays on the Bank of Japan, JGBs and the USD/JPY

Its long and detailed, but in summary (bolding mine):
  • We expect NIRP to end in July 2019
  • also expect continued tapering in JGB purchase, re-widening of the 10y yield band in April 2019
  • decision would be driven by the BoJ's concerns about policy easing side-effects on financial institutions' profits and the narrow "window of opportunity" to normalize (due, for example, to the VAT hike in October 2019)
  • BoJ will likely emphasize that NIRP dismantling is a one-off measure
  • not the beginning of a hiking cycle (inflation remains well below the 2% target)
  • Any clear indication of an upcoming policy change might need to wait until the last minute, just as the July policy tweak was only leaked via the media 1-2 weeks before the decision
  • the end of NIRP could bring forward some of the JPY appreciation that we expect into the next year
  • gradual decline of USDJPY

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