Macquarie Bank is not convinced that the BoJ is about to shock the financial markets

• The Bank of Japan will announce its monetary policy decision of July later today.
• Speculation that the bank could adjust policy arrangements increased considerably before the decision, increasing Japanese bond yields and the Japanese yen. The Bank says that if changes are made, they will probably only be cosmetic, which will create the risk that investors will decide on recent market movements.

If the Bank of Japan (BoJ) decides to adjust the monetary policy parameters Tuesday According to Macquarie Bank strategists, the changes will probably be superficial

which means that many of the movements observed in bond yields and the Japanese yen could be absorbed once BoJ's decision is announced.

"Sources in the Japanese press suggest that the Bank of Japan is ready to adjust its easing program on Tuesday, and we take these reports seriously considering their track record of correctly reporting past policy changes. In contrast, the rhetoric of the BoJ has been less reliable, "says Macquarie.

" But we are not convinced of the magnitude of the shock in store. In our opinion, it will be progressive rather than explosive. "

What changes does Macquarie have, if any?

In short, few.

" More importantly, we do not see any change in the two interest rates objectives – the rate Marginal overnight deposit is expected to remain at -10 basis points, while the target of 10-year Japanese government bonds (JGB) should remain anchored at "around zero percent," he says. The Quantitative and Qualitative Easing Framework (QQE) of the BoJ with the policy of controlling the yield curve will remain unchanged, a scenario according to which the markets could disengage from most of the movements observed in the JGB and Japanese Yen yields [19659005] "Given exaggerated market expectations, such a result could send the USD / JPY moderately higher then, as JGB yields should stabilize, "he says.

"We can see why the market was seduced imminent political adjustment.

" Even though inflation remains low, the side effects of the BoJ's easing program are becoming more apparent . The JGB trade declined, and money market activity was stifled by the introduction of negative rates. "

However, he says that these concerns are not exactly new.And as inflation continues to underestimate the 2% goal of the BoJ, indicating that the bank is now at risk. To reduce its inflation forecast, it believes that there is little to suggest that a major political overhaul is imminent or justified. Targeting the yield curve in September 2016 has been instrumental in ensuring the sustainability of the BoJ's JGB procurement program, "said Macquarie

" The pace of JGB accumulation has half yen a year, and less than half if we adjust for declining Treasury holdings.

"The BoJ's public debt securities are already starting to stabilize in proportion to the total outstanding amount – an encouraging sign for the sustainability of policies. "

Macquarie also says that the markets exe very little pressure for the BoJ to change lanes, noting that 10-year JGB yields had been "very moderate before recent press speculation appeared" and "that they are recovering. to sleep once the political decision is behind us ".

QQE with YCC is largely absent and largely unjustified given the recent slowdown in bond purchases and still low inflationary pressures.

However, Macqurie believes that the interest rate policy remains the same, he thinks the biggest risk is that the BoJ will change its purchases of Exchange Traded Funds (ETFs).

"On the equity side, more acute," he says.

"On average, the BoJ continues to meet its target of buying about 6 trillion yen a year.

"Our basic scenario is that the BoJ will modify the composition of its equity ETF purchases in order to limit its increasing exposure to certain single-name securities, but most importantly, the total annual target shares should remain stable at around 6 trillion yen. "

The BoJ's decision is expected to arrive sometime between 11:30 am and 1:30 pm Tuesday in Tokyo. The general rule adopted by the markets is that the longer the decision, the more likely it is that the bank has adjusted the parameters of the policy.

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