Bank of America Merrill Lynch FX Strategy Research expects the Bank of Japan to remain on hold at its 16 June monetary policy meeting (MPM), keeping both its targets for rates and risk asset purchases unchanged.
“We also think the policy board will retain the ”about ¥80tn" guideline for JGB purchases and refrain from announcing official tapering out of concern that doing so may send an unintentionally hawkish message to the markets. The central bank has every reason to be cautious
However, with the media and some members of parliament expressing increased interest in the BoJ’s “exit strategy”, we believe it will be a focal topic at Governor Kuroda’s post-MPM press conference. But we doubt the governor will say anything new. The governor will likely remain cautious in his communications, reiterating that the central bank is not yet considering specific plans, given the 2% inflation target remains a long way away.
On the FX front, BofAML still argues that self-sustained USD strength may need more time to materialize such that Japanese equities may be a better position for now.
“We prefer being long NZD/JPY for now while we fundamentally remain constructive on USD/JPY,” BofAML advises.
Source: Bank of America Merrill Lynch Rates and Currencies Research
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