Forex Flash: Will BOJ set the stage for additional easing on October 30? - Nomura

FXstreet.com (Barcelona) - Strategist Yujiro Goto examines what may lie ahead during the coming BoJ meeting tonight.

He starts by putting out his view that he expects the bank to leave policy unchanged ahead of the meeting at the end of October. He notes that "Expectations of easing seem low for this meeting and it may turn out to be a less significant event than the previous meeting and the next meeting (October 30)."

While a decision to leave policy unchanged may not disappoint the market, in its statement, Goto believes that investors should pay attention to whether there were any dissenters and whether there is any clear indication that its inflation forecast is likely to be downgraded.

He has seen that local media have reported an increasing possibility of the Bank downgrading its economic and inflation forecasts at the meeting on October 30 which he considers reasonable as the market has already done so.

Goto also expresses his belief that Governor Shirakawa's press conference is more likely to send USDJPY lower than higher. He continues, "In particular, any discussion of the possibility of foreign bond buying by the BOJ could send USDJPY lower. After new Economy Minister Maehara mentioned this, the market has focused increasing attention on this policy option."

However, it has been denied by Governor Shirakawa and he is likely to reiterate the difficulty of this policy option tonight. Consequentially Goto recommends being prepared for negative headlines about possible foreign bond buying which would send USDJPY lower.