GBPJPY) 4H) tame frame ) analysis)

Speculation about when the Bank of Japan will end its negative interest rate policy (NIRP) has been rife, but seen as more likely to come in January than December.

Price action in JPY-related FX option markets isn't offering many clues, with increased demand and high volatility risk premiums for both meetings, and also for a speech by BoJ Governor Kazuo Ueda on Dec. 25.

Deutsche shares sentiment with other banks who expect the Bank of Japan to maintain its current monetary policy framework in December, while hinting at an end to the NIRP at its Jan. 23 meeting. Deutsche attribute a 60% probability to hints being made.

In terms of fundamentals, Deutsche believe that ending NIRP in January is appropriate because the forecast in the outlook report will change since the data already imply a virtuous circle in wages and prices. In terms of practicalities, it is because financial institutions would have sufficient time to prepare for it.

Deutsche suspect that the BoJ will hint at the upcoming policy revision by including some key points in its statement; that it will assess and confirm the virtual circle between wages and prices by the January meeting, with the results to be published at the same time as the outlook report; and that, as a result of this assessment, the policy revision will be judged appropriate and it will continue to emphasize an accommodative policy stance and stable JGB markets even after the revision.

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