USD/JPY is flat during BoJ announcements

Source: Dukascopy Bank SA
On July 16, the Bank of Japan published a Monetary Policy Statement and BoJ Outlook Report. In general, the bank kept its policy unchanged. However, the bank announced that it would reduce its 2021 Japan's economic growth forecast. In addition, the bank noted that due to increasing fuel prices it expects an increase in inflation.

Quoting the statement: "At the Monetary Policy Meeting (MPM) held today, the Policy Board of the Bank of Japan decided upon the following.

(1) Extension of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) The Bank decided by an 8-0 majority vote, with 1 abstention, to extend the duration of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) by 6 months until the end of March 2022 with a view to continuing to support financing, mainly of firms, given that such financing is likely to remain under stress due to the impact of the novel coronavirus (COVID-19), although it has improved compared with a while ago.

(2) Yield curve control The Bank decided by a 7-1 majority vote, with 1 abstention, to set the following guideline for market operations for the intermeeting period. The short-term policy interest rate: The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank. The long-term interest rate: The Bank will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

(3) Guidelines for asset purchases With regard to asset purchases other than JGB purchases, the Bank decided by an 8-0 majority vote, with 1 abstention, to set the following guidelines. a) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding. 2 b) The Bank will purchase CP and corporate bonds with an upper limit on the amount outstanding of about 20 trillion yen in total until the end of March 2022."

Monetary Policy Statement

Statement on Monetary Policy

Monetary Policy Report

Outlook for Economic Activity and Prices (July 2021)

In the aftermath of the release, the USD/JPY was flat for five minutes. Afterwards, the rate traded sideways for four hours until it resumed a surge, which had paused an hour before the event. It appears that the market volatility disappeared just before the release and remained gone until the markets took in the info.

Initial Reaction

Larger scale situation

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