NOMURA: Even if the BOJ rate decision is late, it doesn't automatically mean stimulus is coming

Photo by Junko Kimura/Getty Images

It’s Friday. Yet another day with yet another central bank policy decision. This time it’s the Bank of Japan (BOJ), and it’s expected to act.

Already prevalent earlier this week, speculation over what exactly the BOJ will do — if anything — went up another notch this morning with the Japanese yen screaming higher against the US dollar, signaling increased scepticism from the markets that the bank will deliver an awe-inspiring dose of monetary stimulus.

No one really knows what exactly will occur, whether it be additional asset purchases, a further cut in interest rates or, potentially, something far more inventive.

Additionally, no one even knows when the decision will be announced, adding to market nervousness. As Jordan Rochester and Yujiro Goto, research analysts at Nomura, point out, “the Bank of Japan is the only major central bank that does not provide a set release time for monetary policy decisions”.

Not exactly helpful, and something that can and does lead to some crazy market movements, particularly in the Japanese yen and stocks.

From my years in financial markets, and trading around countless BOJ policy announcements, the general rule of thumb has been that the longer it takes the BOJ to release a decision, the more likely it is that it’s going to tweak policy.

Markets certainly reflect this, with the USD/JPY and Japanese stocks often pushing higher on a delay, particularly surrounding recent meetings in which the BOJ has eased.

“This naturally raises market expectations about whether the BOJ has made a policy move when delaying its announcement,” say Rochester and Goto.

However, while markets have adopted this view, and tend to trade accordingly, Rochester and Goto suggest that under BOJ governor Haruhiko Kuroda, later-than-usual releases do not necessarily lead to a higher USD/JPY.

Here’s their observation relating to past policy decisions:

Since Kuroda became Governor in 2013, monetary policy decisions have been released over two-hour windows (11:57 to 13:57, TKY). Announcements of BOJ actions (QQE, QQE2 and negative rates) have typically been released later than average; the earliest being 12:38 (negative rates) and the latest being 13:44 and 13:50 (QQE and Dec 15, respectively).

Since April 2013, there have been 10 meetings when announcements occurred later than 12:30, including all four policy changes (we add the policy tweak in December 2015). Thus, the likelihood of a BOJ policy change is higher when announcements are delayed, with 40% of meetings after 12:30 leading to action vs. 0% of meetings before, but 60% of those delayed announcements past 12:30 have resulted in no easing action at all.

So, under Kuroda’s watch, no policy easing has ever been announced before 12.30pm JST (1.30pm AEST). Of those that have gone beyond 12.30pm JST, the BOJ has only eased policy on 40% of those occasions.

The chart below, supplied by Nomura, shows the times past policy decisions were announced when the BOJ eased policy, using a symbol for each individual occasion.

Along with showing that the BOJ announcements are not uniform in nature, it also reveals that the initial reaction in the USD/JPY does not always indicate where the currency pair will end the session.

“For this week’s BOJ release therefore we would not read too much into how long the BOJ takes to decide, the duo wrote. “When it comes to trading after the decision, we find that the initial 10 minute USD/JPY move is less of an indicator for where it will close on the day than it once was and recently has shown diminishing returns to easing.”

Rochester and Goto also suggest that markets should pay attention for any headlines that may arrive before the decision is announced.

“On 29 January, the BOJ announced that it had adopted negative interest rates for the very first time, leading to a one-day rise in USD/JPY of nearly 2%,” they wrote. “However, USD/JPY had already started to rise before the official announcement, owing to a Nikkei headline in Bloomberg released at 12:24 stating, “BOJ discusses negative interest rate policy.

“Under Governor Kuroda, this was the first time part of the decision was released in the press beforehand. So it is possibility to be aware of in the hours leading up to any future announcements,” they add.

It’s a lot to take in, but for those who are trading around the event, it’s still invaluable information.

For those along Australia’s east coast, the BOJ announcement could arrive any time after 1pm AEST. While a delay could signal that more easing is coming, as Nomura have pointed out, a delay does not automatically imply that further stimulus is coming.

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