BOJ to maintain its cautious stance - Nomura

Yujiro Goto, Research Analyst at Nomura notes that Nikkei reports that the BOJ is considering upgrading its economic forecast at its next meeting (unconfirmed).

Key Quotes

“The BOJ’s latest FY17 growth forecast is at +1.3%, but the article says the forecast will be upgraded to around +1.5%. The consensus growth forecast has been upgraded recently and an upgrade of the BOJ’s growth forecast would not be a big surprise for the market.”

“At the same time, the article says that within the BOJ some are cautious about upgrading the inflation forecast (unconfirmed). On 5 January, Reuters reported that the BOJ is considering the possibility of upgrading its inflation forecast (unconfirmed) to incorporate the impact of JPY weakness, oil price stability and the improving global economy. Since then JPY weakness momentum has slowed, which may make the BOJ more cautious about sending an overly optimistic message to the market. In fact, Governor Kuroda said yesterday that prices are still moving very slowly and it is too early to think about changing the BOJ’s easing position.”

“Momentum in wage hikes into the spring wage negotiations remains weak, and the Bank is likely to remain cautious about the inflation outlook. The Bank is expected to maintain its dovish stance, although external headwinds have gradually turned to tailwinds. We think the risk of premature tightening to taper ETF purchases is low. The recovery in global inflation could make the ECB’s stance more optimistic as political risks decline, and central banks’ policy stance is likely to be gradually more positive for EUR/JPY from H2 2017 onwards.”