The Japanese yen continued falling against the US dollar after the BOJ concluded its monetary policy meeting. As expected, the bank left interest rates unchanged making it the 32-straight month of no monetary policy changes.
In the August meeting, the bank left rates unchanged but tweaked the forward guidance. The bank said that it would allow the 10-Year Japanese Government Bonds (JGB) to move below or above the zero-line by 0.2%. Previously, the bar was at 0.1%. The officials also committed to retaining the ultralow interest rates for the foreseeable future.
The current base lending rate is minus 0.1%. With the new commitment to retain interest rates this low, experts are waiting to see whether the BOJ will help Japanese banks, which have seen their margins squeezed.
In today’s statement, the officials said that they would leave rates unchanged for an extended period. This was in line with the forward guidance issued in the July meeting. In today’s vote, seven members of the committee voted to retain the low interest rates while 2 members – Goushi Kataoka and Yutaka Harada – voted against the BOJ measures. The two who are known to favour measures to raise inflation said that the plan was too ambiguous.
In addition to this, the bank committed to continuing the quantitative easing program. In the program, the bank will buy JGBs worth more than $712 billion (80 billion yen) annually. Recent data show that the pace of the asset purchases declined to 45 billion yen in the past 12 months.
Meanwhile, the pound continued to gain against the US dollar as optimism over Brexit increased. In recent weeks, officials from the UK and the EU have sounded optimistic about a Brexit deal. An EU official told Financial Times that the EU is optimistic about a deal but is concerned that the agreed deal will be rejected by UK’s conservatives.
Today, we will receive CPI data from the UK. Traders expect the headline number to show that CPI rose by an annualized rate of 2.4% in August. This will be lower than the July’s reading of 2.5%. On a MoM basis, the headline CPI is expected to rise by 0.5%, which will be better than the previous 0.0% number. The core CPI is expected to grow at an annualized rate of 1.8%. This will be lower than July’s 1.9%.
Traders will also be watching out for the US housing market. The Census Bureau is expected to release the building permits numbers. These numbers are expected to show that permits rose to 1.310M in August, which will be slightly lower than the July’s rise of 1.311M. Housing starts are expected to rise by 5.8%, which will be better than the expected 0.9%, while the current account is expected to reduce to minus 101 billion dollars.