Research Briefing | Jan 18, 2023

The BoJ looks to buy time as pressures mount

The Bank of Japan maintained its monetary policy settings at today’s (18th Jan) meeting. At the same time, the BoJ decided to enhance the funds-supplying operations to put downward pressure in the belly zone of JGB yield. Meanwhile, revisions in inflation outlook were smaller than we had expected. We think that the BoJ will continue to stick to its current Yield Curve Control policy ahead. The BoJ will continue to intervene in the JGB market actively in the coming quarters, but a slowdown in inflation together with calming global yields should gradually alleviate upward pressures on the yield curve in H2 2023.

What you will learn:

  • The Quarterly Outlook Report raised the median CPI (excluding fresh food and energy) forecast slightly to 1.8% from 1.6% for FY2023. However, the BoJ continues to view high inflation as transitory. The BoJ’s projection of a 1.6% rise in FY2024 is still short of its 2% target.
  • We share the BoJ’s view that continued 2% inflation is unlikely due to a lack of sustained wage rises. We believe that weak demand means the recent high price pass-through from increased costs to final goods won’t be sustained. Also, signs of alleviation in import prices are emerging.
  • That said, contrary to the BoJ’s intention, the disorderly functioning of the JGB market and a kink in the yield curve continue. To fight the upward pressure in the yield curve, the BoJ is conducting JGB purchases aggressively, absorbing most recently issued 10-year JGBs.
  • If pressures on JGBs persist the BoJ could still be forced to widen the YCC corridor further, for instance by expanding it to +/-0.75% or +/-1.00%, to buy time. We think this risk is still high.
Back to Resource Hub

Related Resouces

Wage rises in 2024 look set to be as high as this year


Wage rises in 2024 look set to be as high as this year in Japan

More market participants appear to have become confident that the wage-driven inflation is real, which will encourage the Bank of Japan to start normalizing its super-accommodative monetary policy in 2024. We revised up our projection for the spring wage settlement in 2024 to match the strength of the settlement in 2023. We believe that wage increase will continue after 2025, but achieving wage-led 2% inflation is still a long way off.

Find Out More
Japan currency


BoJ to allow 10-year JGB yields to exceed 1%

The Bank of Japan (BoJ) left short- and long-term policy rates unchanged at -0.1% and around 0%, respectively, at the meeting on Oct.31. However, the BoJ decided to tweak the yield curve control (YCC) policy by setting the upper bound of 1% as a reference and by making its Japanese Government Bond (JGB) purchase operations more flexible not to rigidly defend the bound.

Find Out More
BoJ will continue effective zero interest rate policy anyway


BoJ will continue effective zero interest rate policy anyway in Japan

The Bank of Japan (BoJ) maintained the policy rates at its September meeting, following a tweak in its yield curve control policy in July. Although this decision was widely expected, the markets are starting to speculate policy changes within the coming quarters, especially after the BoJ governor's recent interview.

Find Out More