Bank of Japan Policy Board meeting & policy rate announcement
I’d like to share a few points to watch for in trades after the Bank of Japan'sPolicy Board decision meeting.
1. Be careful of “surprises”
Market reactions are more heavily influenced by the gap between market expectations beforehand and the actual results, i.e., the “surprise,” than by the decision on the policy rate itself.
In line with expectations: When the policy rate is kept unchanged or the content is already priced in by the market, large fluctuations tend not to occur..
Unexpected announcements: If a rate hike or rate cut is decided contrary to expectations, or if the market receives an unexpected message about future policy direction, the market could move significantly.
2. Read not only the decision but also the “policy statement” and the Governor’s press conference
After the interest rate decision is announced, the accompanying “policy statement” and the content of the subsequent Governor’s press conference are very important.
Future clues: By examining changes in the wording of the policy statement and the nuances of the Governor’s remarks, one can glean hints about the direction of future monetary policy (e.g., the possibility of additional rate hikes).
Market speculation: The price movements immediately after the announcement reflect not only the rate change but also the market’s expectations for future policy derived from the statement and the press conference, so caution is needed.
3. Prepare for sudden market fluctuations
In the minutes to hours following the announcement, forex and stock markets can become very unstable and move unexpectedly.
Spread widening: In FX trading, the bid-ask spread may temporarily widen, increasing trading costs.
Slippage: There can be a large gap between the price you place an order at and the price at which it is actually executed (slippage).
Effectiveness of stops: In rapidly changing markets, your stop-loss orders may not be filled at the desired price.
4. Look beyond the forex market
BOJ policy decisions affect not only the yen exchange rate but also Japan’s stock market (e.g., the Nikkei Average) and Japanese government bonds (JGBs). It is important to assess the overall picture by considering the reactions of each market.
With these points in mind, proceed with careful judgment when trading.
During such important indicators, trading with the Trading Encyclopedia Indicator and its premium toolkit is recommended.
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