BoJ rate move is highly unlikely – Commerzbank

Those who find the Fed’s decisions strange from time to time should remember that the Bank of Japan (BoJ) makes even stranger decisions. Friday morning (European time) is the next opportunity, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

BoJ meeting is a potential serious JPY mover

“Of course, an interest rate move is very unlikely tomorrow. None of the analysts surveyed by Bloomberg expect it, and the OIS market assigns it a probability of almost exactly 0% – although one should never speak of an ‘impossible event’ in the case of the BoJ, which is what statisticians mean by ‘0% probability’.”

“Nevertheless, tomorrow’s meeting is potentially relevant for JPY exchange rates for other reasons. Because any occasion on which Japan’s central bankers explain their strange policy is potentially illuminating. The emphasis, of course, is on ‘potentially’. The explanations they have given us so far are inadequate, to put it mildly.”

“If there is no better explanation tomorrow, I will feel vindicated in my view that the tradeoff between inflation and deflation risks from the BoJ’s perspective is not as clear-cut as one might be led to believe. Ultimately, the fear of sustained inflation above 2% is perhaps greater than the fear of falling back into the zero-inflation trap.”