Asian equities eased on Tuesday, while the yen remained close to a two-week high as traders braced for the Bank of Japan’s (BOJ) policy decision. The BOJ is widely expected to lift its inflation forecasts and ponder tweaks to its bond yield control (YCC) framework at its meeting on October 31-November 1, 2023.
Key points to note:
- Inflation forecasts: The BOJ is likely to revise up its inflation forecasts to show inflation hitting or exceeding its 2% target this year and next. This is due to a number of factors, including the rising cost of energy and food, as well as the weakening of the yen.
- Bond yield control: The BOJ is likely to debate whether or not to make tweaks to its YCC framework. YCC is a policy that the BOJ has been using to keep long-term interest rates low. However, the recent rise in bond yields has made it more difficult for the BOJ to maintain its YCC target.
Implications for markets:
- Asian equities: The prospect of higher inflation and rising interest rates is likely to weigh on Asian equities in the near term.
- Yen: The yen is likely to remain strong in the near term as investors seek safety in the Japanese currency.
- Japanese bonds: Japanese bond yields are likely to rise further if the BOJ makes tweaks to its YCC framework.
Overall, the BOJ’s policy decision is likely to have a significant impact on Asian markets. Investors should closely monitor the BOJ’s decision and its implications