BoJ Preview: Forecasts from nine major banks, unchanged even as JPY weakens

The Bank of Japan (BoJ) will announce its monetary policy decision on Friday, October 28 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks. 

Japanese main interest rate will likely be left at -0.1%, despite inflation standing at 3% year-on-year. The yield-curve control (YCC), which aims to keep the yield of the 10-year government bond at around 0%, is also set to remain in place.

Standard Chartered

“We expect the BoJ to keep the policy balance rate unchanged, even as the JPY weakens and other central banks hike, in a bid to anchor core CPI at 2% and to break out of the deflationary cycle; the BoJ aims to sustainably achieve its price stability target of 2%. The government will likely intervene to ease JPY volatility, but this could prove challenging unless the BoJ makes some monetary policy changes.”

ING

“We expect the BoJ to stand pat despite the recent JPY weakness. Governor Kuroda could however warn that the recent currency movements would have a negative impact on the nation’s economy but we doubt the JPY depreciation will trigger any changes in the BoJ’s policy stance.”

TDS

“BoJ is likely to increase the inflation forecast for this FY to above 2.5% but continue to see the breach of its inflation target as temporary. Rapid weakening of the JPY, tests of the YCC band, and broadening inflation pressures, cannot be ignored. Even if the BoJ does not act, there is a risk of more aggressive signalling and the market appears too sanguine about such risks.”

SocGen

“We expect the BoJ to maintain its main monetary policy, i.e. yield curve control (YCC) and ETF purchases. In addition, the BoJ will continue to conduct daily fixed-rate 10y JGB purchases at 0.25%. At the press conference after the policy board meeting, BoJ Governor Kuroda will likely repeat the bank’s explanation that the main reason for the upward revision of the price outlook is the increase in costs associated with high raw material prices and the weak yen – and price increases due to the cost push lack sustainability. On the other hand, we believe there is a growing possibility that FX intervention will be carried out again. Following on from last month’s policy board meeting, there is a good chance that the government and the BoJ will once again intervene in foreign exchange after the coming press conference.”

Citibank

“The BoJ looks set to keep monetary policy unchanged. Based on PM Kishida’s recent comments, the Japanese government looks unlikely to apply political pressure on the BoJ for policy adjustments to curb yen depreciation. The Bank is likely to maintain its current monetary policy stance, citing the limited rise in services inflation and wages, as well as the government’s continued support for the bank’s accommodative policy despite the drop in the yen.”

BMO

“One would imagine that there is great debate within the Board, with core inflation soaring to an 8-year high of 3.0% (the Minutes from the September meeting showed that there were already concerns expressed) and the JPY plunging to 32-year lows. Governor Kuroda is likely finding it more difficult to push his view that this rise in inflation is temporary. It is widely expected that the Bank will continue with its program of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), but it would be helpful to tweak the language around the latter. Allowing 10-year JGB yields to stray from the 0% target may be enough to give the JPY some support while staying with its QQE. But that may be asking too much.”

OCBC

“We expect BoJ to stay status quo on policy stance though risks of policy tweaks are not ruled out. Options the BoJ can contemplate are (1) slight upward adjustment in 10y yield target or (2) a slight tweak in the upper bound of the YCC cap higher. But BoJ has earlier said that policy adjustment would require compelling evidence to show wages and prices in Japan are rising in a sustainable manner.”

Danske Bank

“We expect the BoJ to keep its yield curve control firmly in place despite gaining pressures on yields and the yen. Until wage growth increases and boosts consumers purchasing power, BoJ will not loosen its grip on the yield curve willingly.”

BofA

“We expect the BoJ to keep all key targets, as well as its forward guidance, unchanged. The board is also likely to leave, intact, the 25 bps ceiling for the 10-year yield under yield curve control (YCC) and reiterate its pledge to conduct unlimited, daily, fixed-rate bond-buying operations in its defense.”