BoJ maintains policy despite burden from a weaker yen
The BoJ made no changes to policy rates at today’s (28th Oct) meeting. Financial markets instead focused on how the Quarterly Outlook Report’s inflation and growth forecasts will be revised after the yen hit JPY150/USD for the first time since 1990. The median CPI (excluding fresh food) forecast has been raised to 2.9% from 2.3% for FY2022, boosted by price increases in energy, food, and durable goods. The revisions to FY 2023 and FY2024 were smaller, with the BOJ’s CPI projection rising to 1.6% from 1.4% for FY2023, and to 1.6% from 1.3% for FY2024. This implies that the BoJ believes higher inflation is transitory in their baseline scenario.
What you will learn:
- The lagged effects of yen depreciation have increased pressures on households through higher prices for daily necessities and have squeezed profits of firms with weak pricing power.
- Unlimited daily fixed-rate JGB purchases give YCC policy the tools to defend the +/-0.25% target range for the 10yr JGB yield. However, the functioning of the JGB market has deteriorated significantly to a level comparable to the worst of the coronavirus pandemic in 2020.
- We believe that the BoJ will maintain the current YCC policy even after Governor Kuroda’s term ends next April as sustained, demand-driven inflation is unlikely to continue and the government is faced with rising financing needs.
Tags:
Related Resouces
Post
Japan’s BoJ is now likely to front-load policy normalisation
We now expect the Bank of Japan will implement an additional rate hike this year, possibly in October, given the hawkish forward guidance at the July meeting. We previously projected the central bank would wait until next spring to hike again. Thereafter, we expect the BoJ to become more cautious and raise rates only once per year in 2025 and 2026 to reach a terminal rate of 1%.
Find Out More
Post
Japan’s industry nearing the trough, with high tech leading the way
Our new proprietary business cycle phase indicator points to a trough in sight for industry, but with dispersion among sectors. High tech is leading the pack with output firmly on its way up. While most other sectors have yet to reach a cyclical trough, we believe they are now closing in.
Find Out More
Post
Yen volatility – so far, just a tremor for global markets
Abrupt yen appreciations have been associated with, or preludes to, global financial instability. So far, the recent yen surge has had only moderate spillovers to global financial markets, which should not have significant macroeconomic effects. But the episode is not necessarily over and the possibility of further yen gains is a distinct risk.
Find Out More