BOJ PREVIEW: FORECASTS FROM SEVEN MAJOR BANKS, SUPER-EASY STANCE

The Bank of Japan (BoJ) will announce its monetary policy decision on Thursday, July 21 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of seven major banks.

The central bank is expected to keep interest rates unchanged as the policymakers are committed to keeping a dovish tone to revive the overall demand in the economy. The BoJ is focused to keep the inflation rate to 2%.

STANDARD CHARTERED

“We expect it to keep the policy balance rate and 10Y yield target unchanged in July; the ruling LDP’s recent landslide election victory provides a strong mandate for PM Kishida and BoJ Governor Kuroda to maintain the dovish monetary policy stance. The BoJ has been under pressure as Japan’s inflation has risen above 2%. However, Kuroda has reaffirmed that the BoJ will maintain its dovish stance to support the economy. Separately, Japan will release national CPI data on 22 July. We expect CPI inflation to have eased to 2.4% YoY, supporting a dovish stance by the central bank. We think it is too early to say if Japan’s CPI has peaked, with core inflation having risen, indicating that inflationary pressure on the demand side is growing.”

SOCGEN

“The BoJ will likely apply a -0.1% rate to the policy rate balance in the current account. It will likely purchase the necessary amount of JGBs without setting an upper limit so that the 10y JGB yield remains at around 0%. The BoJ will maintain the current rate guidance that it will continue with QQE and YCC with the aim of achieving the price stability target of 2% for as long as necessary to maintain that target in a stable manner. The BoJ will likely maintain its assessment that Japan’s economy has picked up as a trend, although weakness has been seen in some areas, mainly due to the impact of COVID-19 and a rise in commodity prices.”

ING

“Given the recent pick-up in covid cases and weaker-than-expected consumption recovery, we expect the BoJ to stand pat. The BoJ will likely pay more attention to downside risks to growth as inflation remains subdued.”

BBH

“No change is expected for any of the bank’s policy settings. Updated macro forecasts will be released but are unlikely to signal any shift from its current ultra-dovish stance. The weak yen is likely to get a mention of concern but the pace of weakening has slowed in recent weeks. USD/JPY rose nearly 6% in March, nearly 7% in April, fell 1% in May and rose 5.5% in June. So far in July, the pair has risen about 2%. In FX, it’s typically more about the pace than any particular level. That said, once we get to the psychological 140 level, there is not much until the August 1998 high near 147.65.”

DEUTSCHE BANK

“While we expect no change in the current monetary stance and forward guidance on policy rates, the BoJ’s Outlook Report is expected to show a downgrade in its growth forecast for FY2022 and an increase in its inflation forecast. The national CPI print will be due the next day and our economist expects core inflation (ex. fresh food) to climb to 2.2% YoY (+2.1% in May) and core-core inflation (ex. fresh food and energy) to 0.9% (+0.8% in May). Small fry in a western context but relatively strong for Japan.”

BOFA

“We expect the BoJ to deliver a one-off rates adjustment in 2H CY22 (base case October), consisting of a hike to the short rate target (to 0.0-0.1%) and a shift in the YCC 10yr target permissible trading band to +0.0-0.5%. But we think it is too early for the BoJ to capitulate and see no change to YCC this week.  They are right to remain dovish, as core inflation remains well below 2%, while headline inflation at 2.5% is the lowest in G10. Still, given how much JPY has weakened, some verbal intervention is likely. This may prevent further JPY weakness, but is not enough for a turn.”

CITIBANK

“We assume BoJ policy is kept unchanged at the MPM on July 20-21. However, the BoJ will likely lift Japan’s inflation projections for FY22 and 23. We also expect Japan’s GDP growth outlook to be lowered for both FY22 and FY23 – to c2.0% from 2.9% in April for FY22, and to c1.5% from 1.9% for FY23.”