In line with our expectations, the Bank of Japan (BoJ) did not add new monetary easing today.
It introduced a new and more flexible monetary policy framework (QQE with yield curve control) in which it moves away from strictly targeting an increase in the monetary base to targeting the 10-year Japanese government bond yield.
Finally, the BoJ strengthened its forward guidance by committing itself to continue to buy assets until the CPI inflation rate has increased to above 2%.
We continue to see USD/JPY in the range of 100-105, targeting 101 in 1M, 102 in 3M and 104 in 6-12M.
We expect volatility in Japanese government bonds to decline significantly, while it remains very uncertain how the new framework will affect the 0-10Y segment of the Japanese government bond yield curve.
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