Forex Flash: BoJ adjusts framework – UBS

Overnight the BoJ minutes from the Jan 21-22 meeting contained fresh insights into current thinking on the policy board (at this meeting the BoJ shifted to a 2% inflation target, and adopted an open-ended framework for asset purchase guidance). First, the explicit desire to affect the yen remains – a few members thought it important to increase the T-Bill purchase target from the viewpoint of exerting influence on the foreign exchange market through a decline in yields.

Moreover, the BoJ took a step closer to extending the range of JGB maturities that qualify for purchase under the Asset Purchase Program – a few members floated the idea of making residual maturities of up to around five years eligible (up from three years currently). According to Research Analyst Gareth Berry at UBS, “It seems a cut to the interest paid on excess reserves was not even considered, although the Bank acknowledged that market participants are now speculating this could happen in future.”

Lastly, the "Bank of Japan Act" was invoked no less than five times in the main body of the text, suggesting policymakers wished to send the message that the policy decision was entirely consistent with the Bank's mission to ensure "price stability" as laid down in the Act – and presumably therefore not the result of unwarranted political interference.