BOJ Makes Technical Adjustments

The Bank of Japan’s March monetary policy meeting, held overnight, had drawn plenty of attention. With the global yields on the rise and with the BOJ still committed to ultra-loose monetary policy, traders were keen to see whether the bank would address the move in yields or adopt the Fed’s view of disregarding them in the near term. Despite the expectations, policy was left on hold with the BOJ statement saying: "We judged that it was necessary to maintain monetary easing at a sustainable form to achieve our 2% inflation target."

Yield Band Widened

While the BOJ kept its monetary policy unchanged, holding rates and purchases at current levels, there were some technical adjustment however that are worth noting. The BOJ announced that it will widen the band of its yield curve control target to allow more volatility in yields on long-term interest rates. Under the new adjustment, the yield curve band will now encompass a 0.25% range, up from 0.2% previously and 0.10% originally.

ETF Purchase Guidance Removed

The BOJ also announced that it is doing away with strict guidance on ETF purchases, which had been set at 6 trillion JPY prior. The move afford the BOJ more scope in terms of easing away from such a high level of purchases and is no doubt a response to the growing criticism of the bank over its asset purchases which many feel have distorted the market and merely funded the governments through bond purchases. Adding further detail on this, the BOJ said that it will now only purchase ETF’s when the market destabilises and will only purchase ETF’s linked to the TOPIX.

Fresh Incentives For Lenders

Additionally, the BOJ said that it will offer fresh incentives for financial institutions to engage in its lending programme, in a bid to boost liquidity and offset the negative impacts of extra rate cuts. The BOJ noted that it will now pay lenders a fee for utilising its loan facilities.

In all, the meeting looks to be the first solid step away from easing and grants the bank the ability to conduct “stealth tapering”. Additionally, the removal of the need to control bond yields so strictly means that the BOJ will be less pressed to act in response to any rise in yields as the economy begins to recover more later in the year.

Technical Views

NIKKEI

The Nikkei has sold off sharply following the BOJ meeting with price now moving back under the 29747.7 level. The risk for bulls now is that the current peak proves to be a lower high against the 30752.5 level, presenting the risk of a deeper correction back towards the 28372.5 level low and the rising channel low thereafter.

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