Investors react to BOJ’s decision to keep rates steady

(Reuters) – The Bank of Japan kept interest rates steady on Friday, but decided to start selling its holdings of exchange-traded funds (ETF) and real-estate investment trusts (REIT).

As widely expected, the central bank maintained short-term interest rates at 0.5% at the two-day policy meeting that ended on Friday. But board members Naoki Tamura and Hajime Takata dissented to the decision.

QUOTES

HIROFUMI SUZUKI, CHIEF CURRENCY STRATEGIST AT SMBC, TOKYO:

“It came as a surprise. With the start of ETF sales and two dissenting votes against leaving policy unchanged (i.e., in favor of tightening), the outcome was hawkish despite expectations for a straightforward hold.”

“In terms of the calendar, even with the LDP leadership election on October 4 and other events ahead, the BOJ signaled that it will proceed steadily with policy normalization. An additional rate hike in October is anticipated.

“This is expected to put appreciation pressure on the yen against the U.S. dollar (i.e., push USD/JPY lower).”

CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:

“The dissent from Takata and Tamura highlights growing hawkish pressure inside the BOJ. While the majority still favour a steady path, the presence of two board members voting against today’s decision suggests the debate is tilting toward quicker normalization.”

“Their stance underscores a gradual shift in board dynamics that could lend yen some support especially after the post-Fed declines. The BOJ’s roadmap to wind down ETF/J-REIT holdings signals that asset-purchase support is fading.”

“That’s a structural headwind for broad indices like TOPIX/Nikkei, though the impact depends on the pace and signalling of sales. For banks, normalization however could be a tailwind via steeper curves and better NIMs, provided the economy momentum remains steady.”

(Reporting by Reuters Asia markets team; Editing by Rashmi Aich)