In the coming Bank of Japan (BOJ) policy meeting, we expect them to discuss on the effectiveness of the recent tweaks to monetary stimulus during the July meeting, although we believe it may take several months to gain a clear picture of the situation. We expect the BOJ in the coming meeting to assess the economic impact from a recent string of natural disasters that damaged key industrial areas.

We believe the impact on supply chain disruptions and a drop in inbound tourists due to the disasters will weigh on the economic performance in 3Q2018 after registering a strong 3% annualized GDP in 2Q2018. Thus, we are of the view that there will hardly be any new fresh policies. Besides, inflation is still stubbornly low. We foresee BOJ to maintain its short-term interest rate of -0.1% and benchmark for long-term rates at zero percent.

On the yen, while the trade tension between the US-China provides headline risk, we feel the wider tone remains resilient. Thus, we foresee the yen unlikely to benefit from risk aversion. Furthermore, our outlook for BOJ to remain dominant into the upcoming BoJ policy decision. Hence, in the near term, we expect yen to trade around 111-112 levels against the US$ while against MYR around 3.66 – 3.72.

• Bank of Japan (BOJ) policymakers are expected to discuss the effectiveness of the recent tweaks to monetary stimulus during the July meeting in their coming policy meeting, although we expect it may take several months to gain a clear picture of the situation.

• To recap, during the July meeting, the BOJ allowed the long-term interest rates to drift higher than previously – a move made stimulus more sustainable by preventing the BOJ’s bond purchases from soaking up liquidity and distorting the market. To avoid the market from viewing the move as a sign of monetary tightening, they provided their forward guidance with a pledge to keep rates low “for an extended period of time” to support growth and potential challenges from a consumption tax hike scheduled in 2019.

• We expect the BOJ in the coming meeting to assess the economic impact from a recent string of natural disasters that damaged key industrial areas. Apart from the severe flood and mudslides due to heavy rains in western Japan that killed more than 220 people, destroyed roads and factories in July, the impact from Typhoon Jebi early this month damaged the Kansai region and shut down its main airport. The 6.7 magnitude earthquake rocked Hokkaido and caused massive landslides and a wide power outage.

• We believe the impact on supply chain disruptions and a drop in inbound tourists due to the disasters will weigh on the economic performance in 3Q2018 after registering a strong 3% annualized GDP in 2Q2018.

• Thus, we are of the view that there will hardly be any new fresh policies. Besides, inflation is still stubbornly low. We foresee BOJ to maintain its short-term interest rate of -0.1% and benchmark for long-term rates at zero percent.

• On the yen, while the trade tension between the US-China provides headline risk, we feel the wider tone remains resilient. Thus, we foresee the yen unlikely to benefit from risk aversion. Furthermore, our outlook for BOJ to remain dominant into the upcoming BoJ policy decision. Hence, in the near term, we expect yen to trade around 111-112 levels against the US$ while against MYR around 3.66 – 3.72.

Source: AmInvest Research - 19 Sept 2018