The focal point for the day in Asia was the final Statement from the Bank of Japan for 2023. As was widely expected the Bank left its main policy planks unchanged:

  • maintained its short-term interest rate target at -0.1%
  • the 10-year JGB yield target was left around 0%, with the 1% upper reference rate ceiling kept unchanged (the previously rigid 1% percent ceiling was made a "reference" point at the October meeting)
  • the YCC decision was unanimous
  • the Bank made no change to forward guidance

There is more in the bullets above. The immediate impact was a sharp weakening in the yen, with yen crosses all higher. USD/JPY jumped from around 142.60 to 143.40 and then ticked a little higher to just above 143.75.

Still to come is Bank of Japan Governor Ueda’s press conference where his words will be scrutinised for clues on the expected timing of the pivot from the Bank. Speculation has already begun that this could come as early as January although the April meeting is the front-runner for now.

Also on the docket today were the Minutes of the December Reserve Bank of Australia meeting. It appears to me that the Bank is completely lost, with the Board noting that the RBA staff forecast had inflation returning to the top of band by end-2025 rather than the midpoint. Why is this of note? Last week the Australian Treasurer announced that he and the Bank had agreed to target the midpoint of the 2 - 3% band. Prior to this there was a decent potential for the bank to dial back its restrictive policy if it viewed hitting 3% as likely and imminent. Now it'll have to wait until the 2.5 number is in sight. And its not even close. That staff forecast puts the timing to hit 3% by the end of 2025. That's another 2 years away. Goodness knows how far away the new mid-point target is. The bank next meet on February 5 and 6, 2024. On January 31 the next official quarterly CPI will be published and this will inform the February decision; If inflation remains high and sticky the likelihood of another rate hike is high.

AUD/USD rose a little on the day. Apart from USD/JPY the big dollar dipped just a little almost across the majors board.

usdyen jpy boj announcement wrap chart 19 December 2023 2