The BoJ meeting on 18th December was widely expected to have little change to their monetary policy but market participants would be closely watching its forward guidance as some are speculating for any signals of an early exit from ultra-loose monetary policy. There were headlines crossing the wires over the previous weeks on changes in forward guidance in BoJ’s policy for early exit of loose monetary policy yet they did not materialize. .
Instead, the BOJ Board continue to bring surprise to the market by amending rules in its fund-supply market operation to assist in defending their YCC target. The amended rules would allow the BoJ to supply funds up to 10 years for financial institutions with collaterals on a fixed or variable rate. While there is no change 10yr JGB yield cap, this amendment signals the market BoJ's commitment in defending their YCC and also their ultra-loose monetary policy. It thus smashed market participant's speculation of an early exit of current policy
At the same time, BoJ has revised the CPI forecast for 2023 higher to 1.8% from 1.6%. GBP for 2023 and 2024 are also revised lower by 0.2% and 0.4% respectively. With the contradictive inflation picture, BoJ is perhaps looking at the growth picture to justify theiur comittment of loose policy.