Yen Advances After BoJ Decision

BOJ keeps policy unchanged slightly more upbeat on inflation outlook

Investors in Asia will turn to the Bank of Japan's monetary policy decision later in the session for potential clues.

The Bank of Japan said today it would continue to purchase 10-year government bonds so that long-term interest rates would remain "at around zero percent".

Governor Haruhiko Kuroda and his board members decided by an 8-1 majority vote to hold its target of raising the amount of outstanding JGB holdings at an annual pace of about JPY 80 trillion.

The board also chose to maintain the -0.1% interest rate on current accounts that financial institutions maintain at the bank. Although market participants are increasingly nervous about the possibility of the BoJ's adjustment of the 10-year yield target this year, we expect the BoJ will not show their criteria for future adjustment of the monetary policy at this MPM.

The central bank said risks to prices are still tilted to the downside, though it did change its assessment on inflation expectations to "flat" from "weak".

The USD/JPY fell slightly early Tuesday after the BOJ announcements because traders said its views on inflation signaled a slightly less pessimistic central bank outlook on consumer prices.

The upshot is that the economist expects BoJ to leave both its policy rate as well as its 10-year yield target unchanged at least until the dust has settled from next year's sales tax hike.

The Bank of Japan's massive monetary easing programme is a cornerstone of Prime Minister Shinzo Abe's "Abenomics" campaign to kickstart the economy after years of torpid growth.

The BOJ statement showed the central bank maintained its policy and its economic and price projections.

The Dow Jones industrial average advanced 0.55 percent, or 142.88 points, to close at 26,124.60.

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