BoJ Preview: To stand pat after December’s surprise tweak – ING

Economists at ING Bank believe that the Bank of Japan (BoJ) will stand pat at its monetary policy decision this Wednesday after announcing a surprise band widening in December.

Key quotes

"10Y JGB yields have traded above 0.50% over the past few days, which suggests that the market is expecting another widening of the yield band or even abandoning the yield curve control (YCC) policy in near future."

"In our view, the economy is not ready for a reduction in stimulus yet. Today’s core machinery orders data recorded a fall of 8.3% MoM in November (vs 5.4% in October and -1.0% market consensus) and other recent activity data have also been weak."

"We believe that the BoJ’s outlook will support our view. We expect BoJ's GDP forecast for FY2022 and FY2023 to be revised lower. For CPI, we expect the BoJ to revise their forecast up a bit, but for it to remain below 2.0% next year."

"Another reason for the BoJ to leave policy alone today is that another band adjustment would probably just increase market expectations for even more policy tightening after that, and this is not what the BoJ would like to see."