BoJ Preview: Forecasts from eight major banks, another dovish hold

The Bank of Japan (BoJ) will announce its monetary policy decision on Tuesday, December 20 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of eight major banks. 

The central bank is expected to maintain its benchmark rate at -0.1%, while policymakers will probably leave unchanged the yield-curve control (YCC) that aims to keep the yield of the 10-year government bond at around 0%.

Standard Chartered

“We expect the BoJ to keep policy settings unchanged, despite rising concerns over CPI inflation. The central bank is likely to pay more attention to weak Q3 growth and improving financial market conditions. The BoJ has been concerned about a weakening JPY, given the impact on the CPI and capital outflows. However, the JPY has appreciated c.7.2% since the last BoJ meeting, easing the central bank’s concerns. We think the BoJ will maintain its dovish stance to support the government’s growth initiatives.”

BofA

“While we expect the BoJ to stay on hold without a major shift in its policy stance, we do not believe the Yen will weaken substantially. While our base case remains the BoJ will not pivot in 2023 under the new governor, we think the market would continue to speculate until after the first MPM under the new governor in April. We eventually think the Yen’s fundamental weakness will manifest itself in 2023 from a perspective of carry trade, it would likely take some time.”

Danske Bank

“We expect the BoJ to stick to its outlier position as a central bank not tightening monetary policy, as inflation in Japan largely remains an imported phenomenon.” 

ING

“Despite the recent accelerating inflation, the Bank of Japan is unlikely to change its easing stance and will not give any hint of any policy tweaks in the near future.  As a result, another uneventful BoJ meeting is expected.”

SocGen

“We expect the BoJ to maintain its main monetary policy, i.e. YCC and ETF purchases. In addition, it should continue to conduct daily fixed-rate 10y JGB purchases at 0.25%. Looking further ahead, we expect Governor Kuroda to make no change to the current monetary policy. We also think his successor, to be appointed in the spring, will continue with YCC although tweak the policy slightly.”

MUFG

“We expect the BoJ to once again push back on speculation of a change in policy. We argue that conditions in Japan are falling into place for a possible change in stance next year but Governor Kuroda will conclude that it is premature for any change.”

BBH

“The two-day BoJ meeting should end with another dovish hold. Despite the recent chatter about a potential policy review next year, we believe it is way too early for the BoJ to commit to one now. Indeed, we believe such an announcement is unlikely during the remainder of Governor Kuroda’s term, which ends in April. Instead, we think it will be up to his successor to initiate a review that sets up a potential BoJ pivot, most likely in H2 of next year at the earliest.”

Wells Fargo

“We expect the BoJ to keep monetary policy unchanged, as growth trends remain rather subdued and the central bank remains unconvinced the recent jump in inflation will be sustained. Although inflation is elevated relative to recent historical standards, the BoJ seems to remain comfortable with its easy monetary policy, which includes keeping its policy balance rate at -0.10% and its target for the 10-year Japanese government bond (JGB) yield at 0.00%. In stark contrast to economies around the world which have seen monetary conditions tighten drastically, we think the BoJ’s accommodative monetary policy should prevent a recession.”