The Bank of Japan has tweaked its policy and introduced forward guidance in order to increase policy sustainability, as the weaker inflation outlook requires easing for longer.
The effective upper bound on 10Y Japanese government bonds has been lifted to 0.2% from 0.1% previously, as the BoJ will now allow yields to fluctuate 20bp around the 0% target - a doubling from the previous tolerance of 10bp.
We expect the BoJ to keep its current policy intact until the end of 2019 at least.
We see today's announcement as positive for global fixed income markets and, if anything, the new forward guidance could accelerate inflows into Europe.
The BoJ's monetary policy should still be supportive for USD/JPY longer term. We target 112 in 1-3M and 114 in 6-12M.
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