BoJ sticks to its yield curve control strategy
The Bank of Japan stuck to its monetary policy at today’s (17 June) meeting, maintaining current short-term policy rates at -0.1% and long-term rates at around 0%.
The BoJ’s new strategy of offering daily, unlimited fixed-rate JGB purchases had been working to defend the +/-0.25% range for 10yr JGB, with purchases lower than previously. Earlier this week, however, the BoJ bought a larger amount, showing its determination to protect the range.
What you will learn:
- Meanwhile, ultra-long yields have been trending higher. We think this reflects an increase in supply, in addition to rising global yields. We expect that steepening pressure from the long end will calm down in H2 as the supply-demand balance improves.
- The April CPI rose to 2.5% y/y – the highest rate since 2008 excluding VAT-induced spikes. Given the large declines in the yen since end-February and the lag in currency pass-through, core-CPI will likely rise higher in H2. Still, we don’t forecast sustained inflation, and expect wages to stay flat.
- We see little chance of the BoJ adjusting its yield curve control strategy given high inflation will prove temporary and muted concerns about policy sustainability. A new communication strategy introduced in April also means we generally don’t expect the 10yr yield to stay above 0.25%.
Short-term outlook for cities deteriorates
Many cities in the world's advanced economies will enter recession in 2023, with soaring inflation and tightening monetary and fiscal policy driving down demand. In contrast, the majority of cities in emerging economies will still enjoy robust economic growth.Find Out More
Easing supply hurdles won’t offset falling industrial demand in APAC
We earlier argued that Asia’s manufacturing activity has been impacted more by demand than by supply-side pressures, due to strict Covid-related policies. Supply constraints in Asia have been less acute than in the US and Europe, and we had forecast resilient industrial growth in 2022 and 2023 as regional demand recovers. But the global growth outlook has deteriorated since then. Following our recent downgrade to 2023 GDP growth forecasts for most Asian economies, we now expect weaker industrial growth in Asia. That said, there will be divergences across the region.Find Out More
Why we forecast Japan’s resilient growth in 2023
We expect the Japanese economy to grow at 0.9% y/y in 2023, after 1.6% growth in 2022. Four reasons why we project the relatively resilient growth compared to other advanced economies: pent-up demand, the key auto industry recovery, supportive policy, and a strong base effect.Find Out More