The Bank of Japan’s Monetary Policy Meeting announced a restatement of the YCC.

The YCC has been flexibilised from its previous stance of defending the 1% ceiling to a target of 1%. The level of interest rates for command operations will now be determined according to various circumstances, rather than strictly 1%; rates above 1.0% will be allowed, but it is unclear how far the BoJ will accept a rise, and it may use indicative operations to actively suppress rates. The market’s reaction was that the content was known from yesterday’s Nihon Keizai Shimbun report and that it had been factored in, or that it was not as much as expected.

The yen has strengthened and the dollar/yen exchange rate has moved from the low ¥149s to the ¥150s. In this sense, it can be said that the market was somewhat more dovish than expected. Above all, although the YCC has been revised, negative interest rates remain and this change is likely to take much longer. The large interest rate differential with other countries will remain and the yen will weaken. All eyes are now focused on the BOJ Governor Ueda’s press conference, which starts at 3:30pm (JST).

In overseas markets, the yen is likely to sell off, but we should be wary of any intervention by the Government or the BOJ. In the past, there have been instances where the yen has been bought nervously, only to quickly recover. If the yen strengthens after an important event such as this one, the possibility of actual intervention cannot be ruled out.

At 7pm (JST), the Ministry of Finance’s International Bureau will announce the implementation of foreign exchange balancing operations, which will reveal whether the sudden yen buying since the beginning of October was a real intervention or not. The market reaction is likely to be quite application-oriented, with the possibility of both a weaker and stronger yen, and the month-end rebalancing at 25:00, but the presence or absence of intervention is not likely to have much impact. The rebalancing is also unlikely to be a major dollar/yen sell-off.