Following the FOMC meeting, the BoJ will also conclude its policy discussions for September and is expected to simply maintain the status quo, showing no changes to its interest rate policy or to QQE with yield curve control, explains the analysis team at Rabobank.
Key Quotes
“This should be no surprise given that the BoJ already extended the deadline for realising its inflation target of 2%, from fiscal year 2018 to fiscal year 2019 at its previous policy meeting – when the BoJ upgraded its economic forecasts, but cut its inflation forecasts for this year and next.”
“Lowering the inflation forecasts has become a recurring theme. Wages and prices have failed to accelerate so far, especially when taking into account recent positive labour market and output gap developments. CPI data came in at 0.4% in April-July and we estimate that actual inflation will reach an average of at most 0.5% this year.”
“Against this backdrop the BoJ is under more pressure to face reality and we expect it to again lower its inflation forecast for the current fiscal year at one of its next few policy meetings. Another scenario would be to cancel the binding inflation targeting deadline, which has already been suggested by BoJ’s board member Funo recently. However, given that this undermines policy makers’ credibility, a more realistic scenario is that the deadline for reaching the target itself will be postponed. One can’t help but wonder how credible it still is in the first place.”
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