Analysis-Bank of Japan may be less dovish than markets think

investing.com:

By Leika Kihara

TOKYO (Reuters) — The Bank of Japan has ditched its dovish forward guidance in favour of a more «data-dependent» approach to policy deliberations after ending negative rates, sources say, keeping the door open for another near-term hike in borrowing costs.

The BOJ ended eight years of negative rates and unorthodox policy last week, making a historic shift away from decades of massive monetary stimulus.

Despite the rate hike, the yen has tumbled more than 1% since the policy pivot, as markets' dovish reading of the BOJ's communication reinforced expectations that another rate hike would be some time off.

In its decision last week, the BOJ said it «anticipates that accommodative financial conditions will be maintained for the time being».

However, a close look at the BOJ statement shows the bank has made no promise to keep interest rates at current low levels but instead conditionally states that borrowing costs could stay low if economic and price conditions don't change.

«The BOJ has made no commitment about the future rate hike pace,» a source familiar with the bank's thinking said on the March statement, a view echoed by another source.

«The timing of the next move is data-dependent, which means all options are on the table,» the first source said.

The BOJ's language last week compared with the more assertive tone of previous guidance that it «will continue» with ultra-loose policy to stably hit its price target, and «will not hesitate» to ramp up stimulus if needed.

The new approach to communication aligns the BOJ with other major central banks, including the Federal Reserve, which ditched rigid forward guidance in favour of a more discretionary approach as they hiked rates aggressively to combat