Event Guide: BOJ Monetary Policy Statement – July 2023

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Rounding up our central bank events this week is the Bank of Japan’s (BOJ) July monetary policy updates.

What are traders expecting and how can the event affect JPY’s intraweek trends?

Here are the important points you need to know if you’re planning on trading the news:

Event in Focus:

Bank of Japan (BOJ) Monetary Policy Statement

When Will it Be Released:

July 28, Friday: tentatively 3:00 am GMT

BOJ Governor Kazuo Ueda will hold a press conference after the announcement.

Use our Forex Market Hours tool to convert GMT to your local time zone.


  • BOJ to keep policy rate on hold at -0.10%
  • No changes to yield curve control policy expected

Relevant Eurozone Data Since Last BOJ Statement:

🟢 Arguments for Hawkish Monetary Policy / Bullish JPY

The Japanese government raised its 2023 consumer price inflation forecast to 2.6% from 1.7% prior

National Core CPI: 3.3% y/y (3.2% y/y forecast / previous)

BOJ’s Tankan manufacturing index jumps from 1 to 5, the non-manufacturing index was also higher from 20 to 23 in Q2 as raw material costs peaked and the removal of pandemic curbs lifted factory output and consumption

Average cash earnings accelerated from 0.8% to 2.5% year-over-year in May vs. 1.2% forecast, adding upside pressure on overall inflation

Retail Sales for May: 5.7% (5.1% forecast/previous)

🔴 Arguments for Dovish Monetary Policy / Bearish JPY

BOJ core CPI ticked lower from 3.1% year-over-year to 3.0% in June as expected, indicating a dip in underlying price pressures

Flash manufacturing PMI fell from 48.4 to 48.1 in July to reflect a sharper contraction vs. projected improvement to 50.1

Japanese government downgraded its economic outlook from 1.5% for the fiscal year ending March 2024 to 1.3%

Core machinery orders tumbled 7.6% month-over-month in May vs. estimated 0.9% uptick and earlier 5.5% gain

Producer prices declined from 5.2% y/y to 4.1% in June, marking its sixth consecutive monthly decline

Industrial Production for May 2023: -2.2% m/m (-1.6% forecast; 0.7% m/m previous)

Household Spending fell -4.0% y/y in May (-2.1% y/y forecast; -4.4% y/y previous)

Previous Releases and Risk Environment Influence on JPY

Jun. 16, 2023

Overlay of JPY vs. Major Currencies Chart by TV

Overlay of JPY vs. Major Currencies Chart by TV

Action/Results: The BOJ announced no changes to its main policies in June. That is, short-term interest rates remain at -0.10% and 10-year JGB yield target and band are still around 0% and +/-50bps respectively.

The decision to hold was unanimous, with BOJ Governor Ueda adding that they think more time is needed to achieve their 2% inflation target.

The BOJ’s move disappointed JPY bulls who had already priced in changes to the YCC policies. This is probably why JPY dropped at the statement’s release, and then extended its downswing to end in the red against all of its major counterparts.

Risk environment and Intermarket behaviors: Downbeat Chinese data and PBOC cutting its 7-day reverse repo rate got traders expecting more stimulus from China.

Then, strong U.S. earnings releases and Powell downplaying the certainty of two more rate hikes fostered a risk-friendly trading environment that pushed “risk” assets like crypto higher and safe havens like JPY and bond prices lower.

Apr. 28, 2023

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

Action/Results: The BOJ kept monetary policy unchanged during their April decision, holding rates at -0.10% and maintaining YCC, as expected.

Prior to the announcement, head honcho Ueda already mentioned in a speech that “it’s appropriate to maintain monetary easing” for now but also said that BOJ stands ready to raise interest ratesif wage growth and inflation accelerates faster than expected.

Yen selling carried on until the end of the week since the central bank removed any forward guidance and hinted that it could take over a year before their policy review is completed.

Risk environment and Intermarket behaviors: Safe havens were already enjoying some support from risk-off flows early in the week, as recession fears and debt ceiling issues were in play.

Risk-taking took over around the middle of the week when U.S. earnings figures started comin’ in hot and Congress passed legislation that could raise the debt ceiling. This forced the yen to return some of its earlier gains, before accelerating its slide during the BOJ announcement.

Price action probabilities

Risk sentiment probabilities:

The FOMC statement was anticipated to be the main risk driver this week and it looks like that may have been a volatility dud as the Fed stayed within expectations, hiking interest rates by 25 bps and maintaining a data dependent stance on future policy decisions.

After a short burst of volatility for an hour, broad market prices stay relatively close to the pre-event levels, signaling little to no change in risk sentiment bias after this event.

That means that risk sentiment bias and volatility focus will likely shift towards the European Central Bank or U.S. GDP / weekly jobless claims data on Thursday. ECB decisions aren’t usually big drivers to broad markets with their statements, but because it’s a central bank event, you’ve gotta stay on your toes just in case they do surprise traders.

Advanced U.S. GDP and weekly jobless claims have had some influence on broad risk sentiment in recent months, so do pay attention there. Expectations are for disappointing economic reads, which could shift traders into risk aversion mode in the short-term.

JPY scenarios

Base case: Market players widely expect the BOJ to keep its interest rates unchanged and to keep buying bonds to maintain a stimulative environment in Japan as they stick to their unwavering stance that high inflation conditions are “transitory.”

But the pressure is on for Governor Ueda and his team. Not only is the IMF already urging the BOJ to move away from its easy policies, but the latest core CPI and even the BOJ’s own inflation projections also show high inflation conditions as sticky.

This raises the level of uncertainty for the outcome of the BOJ event, which means a potential reaction of volatility to be higher than usual, or possibly a momentum move.

For now, the BOJ is likely to once again shrug off external pressures and maintain its policy and inflation rhetoric. A no-change scenario for the BOJ would disappoint JPY buyers who are pricing in the possibility of the BOJ going off script.

JPY could lose pips against most of its counterparts in this scenario, especially considering that the yen had a nice broad run higher mid-week.  If it can maintain its gains going into the BOJ event, then the event outcome may induce long profit taking if the BOJ holds as expected.

Alternative Scenario: 

If the BOJ responds to the external pressures by hinting at future flexibility on their Yield Curve Control (YCC) or interest rate policies, that would arguably be a pretty big deal that could draw in JPY buyers across the board.

JPY could gain pips against higher-yielding bets like NZD, GBP, and AUD if broad risk sentiment is leaning negative on the session. And if risk sentiment is leaning positive, take a look at USD/JPY to see if there any solid setups given that the FOMC failed to spark any bullish momentum in the Greenback on Wednesday.


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About the Author: Webbey Team

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