BoJ Preview: Five major banks expectations

The Bank of Japan (BoJ) will announce its Interest Rate Decision on 15 July at 03:00 GMT. The market consensus is for the BoJ to stay on hold and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's meeting.


“With global central banking taking a breather, the BOJ will be content to make no policy changes or signal one is in the offing. We think this will be the status quo for the foreseeable future. This meeting will be accompanied by a downgraded growth estimate in its Outlook Report. This should surprise no one however. We see little implication for the JPY.”

Standard Chartered

“We expect the BoJ to keep its policy balance rate unchanged at -0.1% and the 10Y yield target at c.0%. We think there is limited room for the BoJ to cut its base rate as negative interest rates have previously backfired in Japan, hurting banks’ profitability and lending. We think the central bank will continue to expand QE to inject liquidity into the market if necessary. The BoJ kept policy rates on hold in June, while increasing the size of its special lending programmes to about JPY 110 trillion from JPY 75 trillion. It left the upper limit on its corporate bond and commercial paper holdings at a combined JPY 20 trillion. The BoJ said that it would not hesitate to take more easing steps if needed.”  


“Don’t expect any changes to their elaborate QE and yield curve control policy. Moves by the BoJ to support the corporate bond market do seem to be paying dividends, however, where corporate bond issuance by Japanese companies surged in June. There also seems little need to alter the yield curve control measures, where the recent 10-30 JGB curve steepening trend has started to reverse.”


“We do not expect any changes to the monetary stance of the BoJ. The BoJ will provide an update to its economic forecasts. In April, the BoJ forecast real GDP growth of between -5.0% and -3.0% in FY20; +2.8% to +3.5% in FY21; and +0.8% to +1.6% in FY22. Last week, the BoJ downgraded its assessments for all 9 regions versus April with the regions either ‘deteriorated’ or in a ‘severe state’. The report suggests downward revisions to economic projections. The key focus next week for the markets will be Governor Kuroda’s press conference. At the meeting on 16th June, Kuroda stated that super-long JGB yields weren’t high compared to other nations – that was taken as a hint of the BoJ seeing scope for the upside for long-term yields. The 30-year jumped from 0.53% up to 0.65% in early July before correcting lower but remains higher than before that meeting. The curve has steepened but could flatten further if Kuroda was to play down this comment. That’s unlikely to have much impact on the yen though. The shrinking cost of hedging foreign bond purchases will undoubtedly lead to increased hedging in the current global climate which will help support JPY. Offsetting that might be some deterioration going forward of Japan’s current account surplus. The portfolio investment interest income surplus in the 3mths to May 2020 fell on an annual basis, a reflection of falling global yields with more declines likely going forward. We see the BoJ meeting as a low-risk event for JPY with offsetting JPY flow dynamics keeping USD/JPY broadly stable.”


“We think the BoJ will remain on hold for now. Although inflation remains low (the May headline figure came in at 0.0% YoY), the Bank will not likely cut rates, in fear of hurting the profitability of Japanese banks further. It is more likely that the BoJ will await the results of its previous rounds of stimulus measures. However, we do not rule out additional measures, especially if Japan’s economy contracts more than the BoJ expects.”

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