Economists at TD Securities discuss the Bank of Japan Interest Rate Decision and their implications for the USD/JPY pair. On Hold – Dovish The BoJ states that the economy is not strong enough and the Bank needs to be patient judging by the moderation in real household spending and Q4 GDP numbers. Ueda may remark that the BoJ needs to wait for the wage outcomes from small-medium enterprises given that they hire 70% of Japan's workforce.
Otherwise, the market will believe the BoJ is likely to be on hold for at least three months. USD/JPY +0.8%. Base Case: 10 bps hike – Measured tone The significant wage outcome from Rengo gives the BoJ the confidence to move in March. Earlier, the BoJ indicated that the policy adjustment to hike will not be rapid, so hiking a month earlier vs consensus should not be a big deal. We expect the BoJ to officially discontinue the Yield Curve Control framework, but retain its Q1 bond buying pace.