So, the Fed held a final press conference and everything went as expected. The regulator left interest rates unchanged between 1% and 1.25%. However, do not rush, the US regulator is not the only central bank that is going to discuss monetary policy this week.
Bank of Japan is going to end its September meeting. And although interest rates are not expected to change, attention will again be paid to the final press conference, which may affect the so-called incentive program and bond yield goals.
The short-term interest rate of the Bank of Japan is at -0.10%, and the ten-year bond yield is around 0%. However, close sources reported that Japanese lawmakers might think about raising targets for bond yields, because the country has shown continuous economic growth in recent months.
Market participants will also follow the regulator’s program to purchase government bonds for 80 trillion yen, most of which is spent on bonds of the Japanese Government. Economists have noticed that the application of the policy of controlling the yield curve led to the fact that the profits from government bonds became insignificant for the Central Bank.
So what happens if the Bank of Japan decides to close its program of buying government bonds?
Most likely, we will see a clear decline in USDJPY, followed by an upward correction. But, of course, it’s better to work with facts than with rumors.
What are the next steps for the Bank of Japan to begin to normalize monetary policy?
After reducing the volume of purchases of government bonds, the Japanese regulator may begin to adjust its monetary policy by ending the policy of negative interest rates. It is important to note that the normalization process can begin even before inflation reaches the bank’s goals of 2%.
If not this month, when can it begin?
The regulator naturally pays a lot of attention to inflation and its further development and, in the end, determines the direction and speed of any changes in monetary policy. If consumer prices continue to rise over the next few months, something real can be done in the near future.