BoJ is widely expected to keep the parameters of the yield curve control unchanged this week. Short term policy rate would be held at -0.10%. JGB purchases will continue without upper limit to keep 10-year yield at around 0%, with fluctuations allowed to some extent. Goushi Katakoa will continue to be the sole dissenter, pushing for more monetary easing.
Governor Haruhiko Kuroda would maintain the assessment that the economy is on track to recovery from the coronavirus pandemic. Yet the path would remain highly depend on infections. There are, though, some expectations that BoJ would downgrade inflation forecasts. for the current fiscal year. With new Prime Minister Yoshihide Suga’s Go To Travel campaign that offers subsidized domestic travel, there is downward pressure on prices. But the temporary move in prices wouldn’t alter BoJ’s plan for now.
Back in June, BoJ forecasts GDP to contract -5.7% to -4.5% in fiscal 2020, then rebound by 3.0% to 4.0% in fiscal 2021. Core CPI (all item less fresh food) was forecast to be at -0.6% to -0.4% in by the end of fiscal 2020, and then at 0.2% to 0.5% by the end of fiscal 2021.
Yen’s path has decoupled from US treasury yield recently. But the next move would still be in-sync with overall risk markets, which is heavily affected by the outcome of US election. AUD/JPY is staying in the corrective pattern from 78.46. While selling hesitated ahead of 73.97 support, we’d anticipate an eventual break to the downside for 38.2% retracement of 59.89 to 78.46 at 71.36.