BoJ: No changes to the ultra-accommodative stance – UOB

Alvin Liew, Senior Economist at UOB Group, assesses the latest BoJ monetary policy meeting.

Key Takeaways

“The Bank of Japan (BOJ), as widely expected, decided to keep its policy measures unchanged at its Monetary Policy Meeting (MPM). What caught the market by surprise was that the BOJ “clarified” its JGB purchase operations where it pledged it “will offer to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted.” (i.e. it will defend its 0.25% 10-year JGB yield cap for the long-term interest rate strategy of the Yield Curve Control).”

“The BOJ continued its stark divergence with its G7 peers who are on the cusp or already normalizing monetary policy, as the Japanese central bank kept its preference for easing bias and retained the statement that “it expects short- and long-term policy interest rates to remain at their present or lower levels.”

“In its latest outlook for economic activity and prices (The Bank’s View), the most notable change was the significant upgrade of its FY2022 inflation forecast which will rise to +1.9% before easing back to 1.1% in FY2023 “due to the impact of a significant rise in energy prices” as BOJ expects that to wane subsequently. The BOJ also introduced the CPI forecasts that exclude both fresh food and energy items (i.e. core-core CPI), to highlight the role of energy in driving the inflation outcomes.”

“The other significant change was the further material downgrades for GDP growth in FY2021 to 2.1% (from +2.8% previously in Jan 2022 MPM) as well as for FY2022 to 2.9% (from +3.9% previously in Jan 2022 MPM), while upgrading the FY2023 growth forecast to 1.9% (from 1.1% previously in Jan 2022 MPM).”

“Even as Japan’s inflation is heading higher, the driving factor is largely stemming from an uncertain supply shock while domestic demand remains weak, in line with Kuroda’s inflation view as he is skeptical that the imported inflation that is surging in many parts of the world will lead to sustained price gains in Japan and he said it will take some time to get sustainable inflation, a clear indication that the BOJ is not considering policy normalization (rate hikes or tweaking current monetary easing) anytime soon.”