Bank of Japan Preview: No change seen over 2018  - Danske Bank

Analysts at Danske Bank, expect the Bank of Japan to maintain its ‘QQE with yield curve control’ policy unchanged at Friday’s meeting and they consider the probability of further easing to be at least as high as the probability of tightening. 

Key Quotes: 

“Since the beginning of the year, we have seen some change in the communications strategy from the Bank of Japan (BoJ). They used to refrain from answering questions related to future tightening, which left markets completely in the dark and caused some very jumpy reactions when Kuroda on occasions hinted at something related anyway. On 3 April, Kuroda said in parliament that internal discussions are at least taking place in the BoJ on the subject. He added that “open talk” of tapering or ending its stimulus would confuse markets.”

“We do not expect new super dovish deputy Wakatabe to team up with Kataoka in the dissenting camp but instead pull board consensus slightly more dovish.”

“Growth is primarily driven by foreign demand whereas private consumption is still looking weak. As growth in Japan’s most important export markets is becoming slightly more subdued and exporters now have to deal with a stronger JPY, we expect the economic upswing to lose some momentum. Q1 figures so far look fairly weak, and that is likely to be reflected in the BoJ’s quarterly macroeconomic outlook released alongside the statement on monetary policy. We thus expect some small downward revisions of the GDP forecast.”

“Currently we see the possibility of further easing from the BoJ as at least as likely as tightening. However, we do not see any policy changes within a one-year horizon and expect the BoJ to move steadily forward with the current policy framework. With the current pace at which the BoJ is picking up government bonds, policies are long lasting and we consider the potential gains from increasing the 10-year rate target to be largely outweighed by the risk of causing damage to the economic recovery.”