March ‘24 BOJ Policy & Initial Commentary

BOJ policy commentary + JPY watch

Note that this is NOT my “official” commentary on BOJ, because this is being written before BOJ Gov Ueda’s press conference in a few hours (🇯🇵15:30).

Which also (once again as always) means:

DO NOT read deeply into current markets operating on / reflecting partial information - and I don’t just mean pre-Gov Ueda press conference, but also awaiting pre-FOMC.

And note that “awaiting FOMC” does NOT mean “JPY / rates are being driven by US policy vs Japan” - as many are currently saying upon a relatively calm USDJPY rate at the moment. Markets are “driven” by (will move and react upon) that which is chronologically last - the moment when ALL information (BOJ + Fed) is known. Do not mistake that for “Fed (or BOJ) is/not the driver,” this is not a market reaction.

And let’s also not forget what I had been flagging leading up to this meeting:

Nikkei (BOJ’s “public communication arm” with a 100% hit rate in accurate pre-leaking every policy change under Gov Ueda) still retains its 100% hit rate in light of the official policy releases today, including yet another 🇯🇵2am day-of policy release “leak”

So- “market response” upon official release? That’s already been underway for weeks - rather than all pent up awaiting one singular moment.

That’s obviously not to say markets are fully and efficiently pricing in Nikkei publishing material non-public policy information. But media presence certainly moves and repositions markets, making any “clean market response” an ever-fading reality.

March 2024 BOJ Policy: Continuation of “YCC-C” & Regaining Flexibility + Control

Here is my initial assessment of what has come out in official policy release- for which there are multiple official policy documents released.

Changes in the Monetary Policy Framework

1) Negative Rates (GLOBALLY) now gone - policy rate range (previously set -0.1% to 0% in Jan ‘16, i.e. the neg rate) now set to range of 0% to 0.1%. This means Japan banks are

2) JGB Buying technically completely unchanged in practice - and (maybe?) a change in rhetoric? Not sure what they’re trying to do/are doing with the statement itself - but in practice: BOJ remains on standby to buy up to an unlimited amount of JGBs as and when they see fit. We just don’t know when and where that is ever since October BOJ in which any YCC explicit upper bound (then set at 1% on 10Y JGB yields) was removed.

3) No more buying ETFs - this also isn’t a “policy change”as much as it is just stating what’s been underway in practice already. Not only does BOJ have no need to “support” the equity markets, but the more the TOPIX index blasts higher to new records (from foreign capital), the bigger the problem for BOJ to eventually unwind these equity holdings as the value of their holdings increase. So, BOJ doesn’t want to buy ETFs, and market participants (foreigners especially) don’t want BOJ to buy ETFs, especially if they’re buying Japan Inc due to shareholder reforms underway - you don’t want to see the central bank in the top 10 shareholders list.

4)This touches on GX Bonds (new sustainability targeted “JGBs” which began issuance in mid Feb ‘24)- which I will address in a completely different article. But nothing here of significance for the immediate.

Big Picture: BOJ Continues “YCC-C” in yet another step towards regaining more control over its policy (i.e. taking back control from market dictation) via increased optionality and flexibility

Will come back with more after Gov Ueda press conference + FOMC, once “full” market response is in.

In immediate- keep eyes on JPY futures / USDJPY- as, even if BOJ has rid their “upper bands of tolerance” on JGB yields and moved towards “normalization” of markets, Ministry of Finance is still very much trying to (and will) cap USDJPY at 150+, which is ironically the one asset class that’s testing these interventionist levels (JGBs & Japan equities don’t need policy intervention support at current anyway).

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Weston