Bank of Japan Preview: Forecast from eight major banks

The Bank of Japan is scheduled to announce its Interest Rate Decision on Tuesday at 07:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of eight major banks.

The BoJ is expected to leave the rate at -0.1%. Ahead of the Monetary Policy Statement, the USD/JPY pair turns north and recovers the 108.00 level after dropping to 107.70 area.

Natixis

“While the possibility of a lower policy rate has increased, we believe the BoJ will remain very cautious in deciding whether to cut rates further. To be sure, a lower policy rate would increase the incentive on the BoJ’s new scheme with an outstanding amount of JPY125 tr. However, from a market mechanism, a further rate cut will arguably lower the lending rate for most bank loans amounting to JPY587 tr. Therefore, the net effect of a rate cut is a reduction in banks’ profitability in as far as it will further reduce banks’ net interest margin and it might not lift the demand for loans. Although the BoJ recently introduced a new loan scheme enabling further rate cuts, the Bank is unlikely to lower the policy rate any time soon, all the more so since we are not expecting renewed deflationary pressures. A stronger yen below USD/JPY=100 could change this scenario as it would indeed create new deflationary pressure through lower import prices. Even if we do not expect a new rate cut, at least, Governor Kuroda can use the new policy tool as a way to protect the interest margin and also remind market participants of the risks of a too strong yen.”

Danske Bank

“We expect no policy changes following last months' policy tweaks in the wake of their review. We will get fresh forecasts for inflation, where we can expect 2023 to mark another year of not reaching the 2% inflation target, the last in governor Kuroda's current five-year tenure.”

ING

“Having tweaked the policy at the March meeting for a broader trading range for benchmark bond yields and scrapping the target for ETF purchases, there is little likelihood of the central bank tempering it again in just over a month.”

TDS

“This meeting is likely to be uneventful. At its March meeting, BoJ announced tweaks to policy following a long-awaited review. Nonetheless, growth risk have increased, with a third state of emergency issued in Tokyo, leading to fears of a double-dip recession. As such BoJ will likely sound cautious on domestic demand, potentially making some changes to its growth outlook.”

BBH

“Recall that the bank unveiled its policy review at its last meeting on March 19. It was underwhelming, as we expected. The bank widened its target range for the 10-year JGB yield to +/- 25 bp around 0% vs. +/- 20 bp previously. The BoJ concluded that capital spending is mostly unaffected by fluctuations that are within 0.5 percentage point. This suggests it is unlikely that the bank will widen the band further. New forecasts will be closely watched. Currently, the bank sees targeted core inflation at 0.5%  for FY2021 and for FY2022 at 0.7%. FY23 forecasts will be added at this meeting and reports suggest it will be around 1.0%. Bottom line is that even with these policy tweaks, inflation is likely to remain below the 2% target through FY23 as well. As such, the BoJ will signal that it intends to keep policy accommodative until FY24 at least.” 

Deutsche Bank

“The BoJ will retain its current policy stance next week, having only just fine-tuned their framework after the policy assessment last month. For the Outlook Report, the expectation is that it will raise the overseas growth projections, but the main focus will be on the new figures for FY2023, where our economist is looking for a real GDP growth forecast of 1.2% and core CPI inflation forecast of 1.1%.”

Rabobank

“The BoJ will have to balance the robust activity levels in manufacturing and in exports with the poorer performance of domestic consumption caused by Covid restrictions. It is expected that the Bank will provide revised economic forecasts and these should give guidance to the market about the likely performance of the economy in the first half of the year. Q1 GDP data are not due for release until mid-May. While base effects are widely expected to push CPI inflation higher, core inflation may rise no higher than zero in the current quarter. Last month’s monetary policy review has provided the BoJ will a little more flexibility on its activities. There would appear to be little risk that policy makers will not continue to pursue ultra-accommodative policy measures for the foreseeable future.”

UOB

“Despite the March framework review, the adjustments were small and did not portend any imminent danger of BoJ lowering rates further. We still expect BoJ to ease monetary policy further in the next MPM, most likely through reaccelerating its JGB purchases and expanding its lending facilities.”