Further easing expected from the BoJ – UOB

Senior Economist at UOB Group Alvin Liew assessed the latest BoJ event.

Key Quotes

“In its scheduled Monetary Policy Meeting (MPM) on Thursday (29 Oct), the Bank of Japan (BOJ) as widely expected, kept all of its existing monetary policy easing measures unchanged. Like the previous meetings, this was not a unanimous decision as BOJ policy board member Goshi Kataoka dissented again for similar reasons given in the previous MPM in July and September.”

“To re-cap, the BOJ kept its following measures unchanged to achieve the 2% inflation objective: Yield Curve Control and BoJ’s Other Asset Purchase Guidelines.

“The BOJ will also maintain the existing fund-provisioning measures to support financing mainly of small- and medium-sized firms/enterprises (SME).”

“The latest BOJ projection for economic activity and prices was further downgraded for FY2020 although the latest revisions continued to impart a marginally more optimistic rebound after FY2020.”

“Japan is still expected to experience mild deflation (-0.6%) in FY2020 (revised from -0.5% in July MPM) before returning to a very mild inflation of +0.4% in FY2021 (slight improvement from +0.3% estimated in July MPM). Inflation will remain well below the 2% BOJ target in the projection period of FY2021 to FY2022.”

“We have not changed our view and we still expect the BOJ to do more and enhance its monetary policy easing further, most likely through increasing its JGB purchases and expanding its lending facilities to Japanese corporates and SMEs while the ETF and corporate bond buying program may be enhanced (at a later date). However, we no longer expect the BOJ to cut policy rate further into the negative territory.”