This is via eFX .... Previews of the BOJ from 13 major banks
(But first, a preview from a minor dude in Australia ... no change in policy expected, more here and here)
The following are the expectations for today's BoJ meeting as provided by the economists at 13 major banks and some thoughts on the JPY into the event as provided by the FX strategists at these banks. Out of the 13 banks, 6 see no easing, 6 see further easing, and 1 bank (Credit Suisse) puts it at 50-50 chance.
Goldman Sachs (Further Easing): Our base case is for the BoJ to undertake: a maturity extension of existing JGB purchases, an increase in the run-rate of JGB purchases from 80 to 90 JPYtn per year, and an increase in ETF purchases from 3 to around 5 JPYtn. This call this week is a close one, but even if policy is unchanged at this week's meeting we think the BoJ will ultimately need to loosen policy as their inflation forecast moves further out of sight - we see further $/JPY upside as a result. We think $/JPY should move through 125 in the wake of the meeting should the BoJ ease as we expect. With further upside expected from our base case and with an IOER cut an outside chance, the risk-reward in long $/JPY looks favourable into the meeting.
SocGen (Further Easing): Our Japan economists expect the annual pace of increase in the BOJs monetary base from Y80trn to Y85trn as they accept that the FY2016 inflation forecast 1.9%) unrealistic. We would expect a bigger FX reaction to a failure to ease (USD/JPY down) than to the move we look for, which is more likely to be equity-friendly than yen-negative. Psychologically, the key is whether the BOJ move is enough to trigger a break throughout of the USD 118-122 range that has been holding for the last two months. If the BOJ does ease, and the topside of that rate holds, we'll look to use that to buy yen.
Barclays (Further Easing): Our expectations for a further BoJ easing is a close call and we believe scope for further yen weakness is limited due to undervaluation, a decisive easing by the BoJ could put a sharp upward pressure on USDJPY, at least in the short term. When the BoJ surprised the markets with QQE2 last October, USDJPY rallied by more than 3 yen on the day. From a technical perspective, a break above 121.75 would signal higher. Our greater targets are towards the 125.30/125.85 range highs.
Citi (Further Easing): Citi economists expect fresh easing over the next four months and see this week's meeting as the most likely. While the form of easing is uncertain, balance sheet expansion or even rate cuts are still likely to weaken JPY. JPY also looks an attractive short from the risk perspective.
Credit Agricole (Further Easing): Our economists expect the central bank to consider an even more aggressive monetary policy stance ahead of the end of the year. The 30 October meeting appears to be the most likely timing considering that the BoJ will release the semi-annual outlook on the economy and prices. Even if the central bank keeps its powder dry next week it seems to be only a matter of time before additional measures will be announced. As a result of the above outlined conditions we remain of the view that JPY rallies should be sold, in particular against the USD.
Danske (Further Easing): The BoJ monetary policy meeting tomorrow morning will take centre stage in global FX markets. We expect the BoJ to announce additional QE by increasing its target for the annual monetary base expansion from JPY80trn to JPY100trn. Additional asset purchases are likely to involve longer-dated Japanese government bonds and other assets such as exchange-traded funds and real-estate investment trusts. In particular, we believe that a substantial downward revision of both the inflation and growth forecasts in the semiannual outlook report for FY 2016, which will be released in connection with the policy announcement, will require action from the BoJ in order to retain credibility in its inflation target of 2% CPI inflation. Moreover, recent data out of Japan indicate that there is a substantial risk of yet another technical recession, similar to the negative GDP growth in Q2 and Q3 last year, and we think that the BoJ would like to boost the economy and accelerate inflation expectations ahead of the spring wage negotiations.
Moragn Stanley (No Easing): We are not expecting any further easing from the BoJ as the policy focus seems to be switching from monetary to fiscal measures. The fundamental picture for the JPY is also improving, with signs of economic improvement and domestic inflation picking up. Moreover, the JPY's status as a regional safe haven would also suggest support if the global risk environment deteriorates. However, we would focus JPY bullish strategies on the crosses at this stage rather than USDJPY.
BNP Paribas (No Easing): BNPP economists' base case expectation is that no further easing will be announced at the BoJ meeting on 30 October, due to the heightened cost of additional easing and less favourable cost-benefit analysis of further JPY depreciation (ie, the benefits to exporters are being increasingly offset by the costs to consumers). BNPP outlines 4 potential outcomes for USD/JPY from this week's meeting. Scenario 1 - No change in policy, no details on how to fill JPY 10trn gap. USDJPY implications: The pair moves lower, but only to a limited extent given FX positioning. Pair unlikely to break below support around 118.70. Scenario 2 - IOER rate cut. USDJPY implications: This would be considered a surprise to the market. Given FX positioning, we would expect a similar sized reaction as last October (ie, a 2-3% move higher to 123.00-124.00) with persistent JPY weakness over the following weeks. Scenario 3 - Maintain the JPY80trn monetary base target, with an increase in ETF purchases filling the JPY 10trn. USDJPY implications: This would not be considered an aggressive easing of policy, but the support for Japanese equities would likely support USDJPY given their close correlation. Moderate upside pressure for USDJPY over time, but immediate reaction is likely to be muted. Scenario 4 - Increase gross JGB purchases and extend the maturity of purchases. USDJPY implications: An increase by more than JPY10trn can be considered an aggressive easing of policy. USDJPY moves higher by 2-3% to 123.00-124.00).
BofA Merrill (No Easing): Although we think the BoJ decision is too close to call, we continue to see better than a 50% likelihood the central bank will stand pat as long as September industrial production data do not reveal extreme deterioration. We expect the BoJ to adhere to its main scenario, which expects the Chinese economy to gradually stabilize thanks to supportive government policies and the US economy to return to a recovery track from Oct-Dec. In that environment, the BoJ is likely to continue to expect record corporate profits to lead to higher capital investment, higher wages and finally higher consumption. We therefore think it will opt to continue monitoring data for the time being.
Nomura (No Easing): For the BOJ, a sizeable portion of market participants are calling for further easing already at this meeting. However, our expectations are still for no additional easing at this meeting. That being said, it will likely downgrade forecasts for GDP and inflation.
BTMU (No Easing): We maintain the view that the BOJ will refrain from any action at its meeting on Friday. There is certainly some element of positioning related to a move and hence we would expect the yen to strengthen in the immediate aftermath of the announcement. Still, USD/JPY should settle in or around the 119.00- 120.00 level and the dollar is likely to find strong interest to buy given the increased expectations of a Fed rate increase on 16th December.
RBS (No Easing): Our base case remains no easing this Friday and a sharp post-meeting bounce in the yen. If the BoJ stays on hold and only marginally lowers forecasts, dollar-yen will fall sharply back into its recent 115-120 range. 2- If the BoJ is unchanged but significantly downgrades forecasts, dollar-yen will likely be bought on the dip below 119-120 3- If the BoJ eases modestly by only raising ETF, REIT purchases, dollar-yen will succumb to profit-taking and fall below 120 4- If the BoJ eases sharply by raising its ¥80trn a year JGB buying, dollar-yen will trade in a higher 120-125 range. We think the probabilities for the BoJ's four scenarios above are 40%, 30%, 15% and 15% respectively.
Credit Suisse (50-50): we now reckon that there is only a 50-50 chance of the BoJ announcing further easing on October 30...This mixed picture suggests to us that a meaningful BOJ easing could see USDJPY push higher towards levels around 124.00 commonly traded before the August sell-off, but should see resistance there as selling emerges from a market that is arguably long topside gamma. If there is no easing, we suspect USDJPY losses should be contained below 119.00 given ongoing demand for foreign currency assets out of Japan and the likelihood that the BOJ will keep easing options on the table.
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