As was widely expected the BoJ held its policy strategy unchanged. The vote was 8-1 with the lone dissenter (policy board member Goushi Kataoka) voting for additional easing measures such as examining 10 year 0.0% and 15 year 0.20% yield targets. In their quarterly outlook report, the bank downgraded core inflation forecasts to 0.8% from 1.1% in 2017 and 1.4 from 1.5% in 2018. Members continued to expect their 2% inflation target rate would be reached by 2019. A bright spot was growth, which was revised marginally higher to 1.9% from 1.8%. At the accompanying press conference, Governor Kuroda reiterated, that discussion of exit strategy was premature.
Effect on JPY was muted, as USDJPY was range-bound between 112.95 and 113.25. In regards to FX, BoJ policy is losing effectiveness to debase the JPY as years of Abenomics has exhausted traders. Any adjustment in the BoJ's ultra-accommodative policy would be unlikely unless CPI climbed well above 1% in a smooth trend. However, markets could see micro tuning with slowing its purchasing this year's limitations on the volume of Japan Govt. Bond Futures's in rotation, but a maintenance of YCC should not be a problem.
FX prices have reconnected with US yields (especially US 10yr yields) indicated that the fate of USDJPY is no longer in the hands of BoJ but dependent on policy decision in the US. The failure of the USDJPY to break 115 suggests correction to 112.30 to loosen extended longs. PM Abe's recent decisive electoral victory and probability that BoJ Governor Haruhiko Kuroda will be reappointed in April indicated that JPY's weakening policy will remain although in effect. be less effective.