BOJ Policy Announcement Preview

Submitted by RanSquawk

The Bank of Japan will conclude its latest 2-day policy meeting on Friday in which consensus is for the central bank to maintain NIRP at -0.10% and keep QQE with YCC unchanged in which it will purchase JGBs so that 10yr JGB yields remain around 0% with some flexibility. The BoJ is also expected to maintain forward guidance of keeping rates at current extremely low levels for an extended period of time considering the uncertainties related to the economy and prices including the impact from the scheduled sales tax hike later this year.

The latest comments from BoJ officials have not deviated much from their all too familiar rhetoric which suggests the central bank is unlikely to provide any policy surprises in the near-term. This includes Governor Kuroda who has constantly reiterated to patiently maintain powerful monetary easing to achieve the price goal and will mull additional measures if the economy loses momentum towards hitting the target, although he has also repeated his view that momentum is intact and it is inappropriate to change the BoJ's current policy framework prior to reaching the target. Kuroda’s views are shared by most of the board, who have constantly noted that several options are available if the BoJ needs to ease policy further, aside from the notorious dovish dissenters Harada and Kataoka who have expressed doubts of reaching the price goal under the current framework.

Recent tier 1 data releases from Japan have been mixed which suggests a lack of urgency to make policy adjustments, as Q4 Annualized GDP printed better than expected at 1.9% vs. Exp. 1.8% and back in expansion territory compared with the 2.6% contraction during the prior quarter, while inflation remains stagnant with headline CPI in January at 0.2% vs. Exp. 0.2% (Prev. 0.3%) and Core CPI at 0.8% vs. Exp. 0.8% (Prev. 0.7%). These varied releases therefore favour a “wait and see approach” regarding policy settings, although source reports have suggested BoJ could cut its assessments regarding exports and industrial production at today’s meeting due to a recent contraction in Industrial Production and after Exports fell by 8.4% in January which was the largest contraction since October 2016.

As usual, there is no exact scheduled time for the BoJ policy announcement which tends to occur anytime from the start of the Tokyo lunch break at 0230GMT/2130CDT/1030HKT, while no major fireworks are likely from the announcement with only a muted reaction expected if the assessment downgrades materialize.

Recent Comments and Calls

  • Deutsche Bank expects no policy changes and the meeting to likely be a non-event especially considering the meeting doesn’t include an Outlook Report.
  • Goldman Sachs expects BoJ to maintain the status quo across policy settings and sees discussions to focus on recent weak export and output data, leading to assessment downgrades.