BoJ Preview: Forecasts from six major banks, hard to see new measures this time

The Bank of Japan (BoJ) will hold its monetary policy meeting on 16 July at 05:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks.  

The BoJ is set to downgrade its forecast amid the spread of COVID-19 in Japan and around the world. That could weigh on the yen, albeit temporarily, as the currency is a safe-haven asset, as FXStreet’s Analyst Yohay Elam previews.

Standard Chartered

“We expect the BoJ to keep the policy balance rate unchanged at -0.1% and the 10Y yield target at c.0%. While Japan’s exports and production have shown an improvement, driven by global demand, domestic demand remains depressed due to COVID-19 concerns and the extended state of emergency. We think the BoJ is unlikely to turn hawkish as CPI remains benign; Kuroda said that global inflationary pressure is not a concern beyond this year, so its impact on Japan will be limited. We expect Japan’s economy to have rebounded in Q2, supported by strong exports and investment. Fiscal policy is likely to be expansionary in H2, with the incentive for increased government spending likely to be strong in an election year.” 

BBH

“At its last meeting June 17-18, the bank extended its emergency lending programs beyond September and also announced that it will follow other central banks in encouraging green policies throughout the economy. The BoJ said the new initiative will aim to boost private-sector efforts to respond to global warming by providing cheap funds for bank lending to climate-friendly businesses. With another slug of fiscal stimulus looking increasingly likely in H2, the BoJ is likely to remain on hold for the time being.”

SocGen

“We expect that the BoJ will maintain the current main monetary policy (YCC and ETF purchases). In addition, it extended ‘the Special Program to Support Financing in Response to COVID-19’, currently set to expire in September 2021, to the end of March 2022 at the June policy board meeting. Moreover, according to the June Tankan survey, financial positions for large and small enterprises improved. Therefore, measures to support financing will also be maintained. We forecast a downward revision in the GDP forecast for FY 2021 from +4.0% in April to +3.7%. We also forecast an upward revision in the forecast for FY 2022 from +2.4% to +2.7%. Finally, at the June policy board meeting, the BoJ judged it prudent to introduce a new fund provisioning measure. This new measure will be a successor to the Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth. The BoJ will likely launch this new measure sometime within the remainder of 2021. It will make public the preliminary outline of the measure at the July policy board meeting.”

MUFG

“We expect the BoJ to leave inflation projections broadly unchanged while the FY21 GDP forecast of 4.0% could be cut due to the latest restrictions. But we do expect a more downbeat tone from the BoJ Governor given the renewed restrictions and the global rise in the Delta variant. The primary additional focus of this policy meeting will be the details of the climate change lending program that was announced at the last meeting. We do not envisage these details being market moving in FX. While the BoJ may be a little more cautious on the outlook than previously, there should still be a sense of optimism based on the premise that increased vaccinations will result in a pick-up in activity from September onwards.”

UOB

“The BoJ is not expected to tighten policy anytime soon and will maintain its massive stimulus in the next few years. Concerns tilted to the BoJ having reached the limits of its monetary policy and will remain in a holding pattern until at least April 2023.”

Danske Bank

“We expect the BoJ will keep policies unchanged. Renewed restrictions in Tokyo will keep the domestic economy weak well into Q3 and postpone any potential withdrawal of the pandemic stimulus. It will be interesting to see the details on the BoJ's new scheme to boost funding for activities related to climate change.”