Preview: BoJ expected to keep policy settings unchanged at its latest meeting this Thursday morning

Analysis details (22:35)

The BoJ will conclude a 2-day policy meeting on Thursday in which the consensus is for the central bank to maintain current policy of QQE with yield curve control and a 10yr yield target of around 0%. Expectations are also one-sided for NIRP to be kept at -0.10%, while majority of forecasters anticipate no changes to the central bank's pace of monetary easing until late 2018, at the earliest. The meeting will also include 2 new board members Kataoka and Suzuki who are both seen to adhere with Governor Kuroda’s stance, with Kataoka known as a reflationist while Suzuki previously worked in banking and views exit discussions as risky considering inflation is a considerable distance to the 2% target. 

Comments from the seasoned BoJ officials have been few and far between since the last meeting, although have still implied an unlikelihood of any near-term policy tweaks as they stressed commitment to the 2% inflation target and the importance of maintaining current powerful easing. In addition, Governor Kuroda stated that there is currently no need for further easing, but suggested a willingness to adjust monetary policy as needed to maintain momentum towards the price target.

Elsewhere, the latest data releases have been mixed and therefore inconclusive regarding implications for policy, with National CPI Y/Y steady at a soft 0.4% (Prev. 0.4%) and Core CPI not much higher at 0.5% (Prev. 0.4%), which are both at a considerable distance to the 2% inflation target. Furthermore, Q2 GDP figures were recently brought back down to reality with the Final annualized reading revised to 2.5% vs. Exp. 2.9% (Prev. 4.0%), while growth in Exports topped estimates. As such, these varied releases support the case for the BoJ to remain sidelined and observe the future progress of the economy, but could have an impact on median forecasts for the Outlook Report next month.

As usual there is no exact scheduled release time for the announcement, which tends to be anytime from the start of the Tokyo lunch break at 0330BST/2230EDT. Since the policy announcement is unlikely to trigger considerable price action given the current predictability of the BoJ, focus will turn to the accompanying statement as a dovish tone or concerns regarding subdued inflation could increase calls for future measures and weaken JPY, while the opposite could be expected if the central bank continues to suggest an unlikelihood and lack of urgency for future support.

Recent Comments from Banks and Institutions
- Barclays commented that risk of a change to monetary and fiscal policy emerged with the decline in the approval ratings of the Abe administration, but added that even if BoJ feels pressured to support economy, its options could be limited.
- Goldman Sachs expects BoJ to maintain policy settings and also expects the newest board additions to vote in line with Governor Kuroda.
- Moody’s stated it does not expect the central bank to err towards normalisation, nor abandon its yield-curve control policy until inflation and inflation expectations permanently rise above 2%.

20 Sep 2017 - 22:33- Research Sheet- Source: RANsquawk

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