After surprising markets with tweak to YCC in Jul, the Bank of Japan (BOJ) returned to its status quo position in its scheduled Monetary Policy Meeting (MPM) on Fri (22 Sep), where it kept the key policy objectives and forward guidance unchanged to achieve the 2% inflation objective.
During the post-MPM press conference, BOJ Governor Ueda stayed the script and did not give away anything new on BOJ’s normalisation timeline or the conditions that will induce BOJ to scrap YCC or end negative rates. He seemed to have walked back on the hawkish comments during his Yomiuri interview, sounding more balanced.
BOJ Outlook – On The (Long) Edge Of Normalisation The Sep MPM does not change our view on the path of BOJ normalisation. We still expect Gov Ueda to carry out the path to normalisation/unwinding in two broad steps. 1) we expect a material period (present to Dec 2023) of adjustment to its forward guidance on Yield Curve Control (YCC) and interest rates with possibility of further tweaks in the name of “greater flexibility” and “to enhance the sustainability of monetary easing”, to give market guidance and time to prepare for an orderly exit of BOJ’s ultra-easy monetary policy, and 2) we still expect monetary policy normalisation to begin only in early 2024 - negative policy call rate to rise from -0.1% to 0% in Jan 2024 MPM while YCC to be dropped in Mar 2024 MPM.
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