BoJ likely to look through widespread price jumps
The Bank of Japan left monetary policy unchanged at today’s meeting, maintaining current short- and long-term interest rates as we anticipated. The BoJ’s new strategy of offering daily, unlimited fixed-rate JGB purchases has been defending the +/-0.25% range for 10yr JGB, with lower purchases than previously.
The BoJ’s quarterly Outlook Report revised up the median CPI forecast to 2.3% from 1.9% for FY2022, but estimates for FY2023 at 1.4% and FY2024 at 1.3% remain short of the BoJ’s 2% target.
What you will learn:
- We share the BoJ’s view that the ongoing price increase is a one-off event driven by a sharp rise in input costs. We don’t forecast sustained inflation without support from demand, which is unlikely amid stagnant wages.
- Despite the modest overall rate, inflation is unprecedentedly widespread – particularly price rises for daily necessities. This, alongside yen weakening, was a major issue at the upper house election on July 10, although the ruling parties secured a comfortable majority.
- We still see no incentive for both the Kishida administration and the BoJ to change the current low interest rate policy through the Yield Curve Control framework. The death of former Prime Minister Shinzo Abe is unlikely to change the overall macroeconomic framework in the near future.
Japan: Ueda pushes back timeline for policy adjustment
The Bank of Japan (BoJ) left monetary policy unchanged at its first meeting under Governor Kazuo Ueda. Lower global yields and the BoJ's recent measures to kerb short-selling have reduced pressure on the 10-year JGB, giving Ueda breathing room to review easing measures.Find Out More
Japan: The impact of structural labour shortages on inflation
We have revised up our long-term wage and inflation projections based on a larger impact from structural labour shortages due to adverse demographic trends. Even after raising our wage growth assumptions by 0.5ppts on average over 2024-2030, however, we still forecast inflation only reaching 1.4% in 2030 – well short of the 2% target.Find Out More
China travel recovery: Timings are clear, but magnitude remains uncertain for 2023
The late December announcement of China’s intention to re-open its borders for travel took the international community by surprise, with little time to prepare. Border re-opening fell just before Lunar New Year, which proved to be significantly stronger than the last with domestic travel reportedly at 89% of 2019 levels and an initial surge in both inbound and outbound visits, albeit to levels well below those in 2019.Find Out More