BoJ Preview: Forecasts from eight major banks, ditching long-held view on price risks

The Bank of Japan (BoJ) will announce its policy decision on Tuesday, January 18 at 03:00 GMT. The BoJ is unanimously expected to keep its policy settings at the conclusion of its two-day review and as we get closer to the release time, here are the expectations forecast by the economists and researchers of eight major banks. The quarterly report on price and growth outlook will be critical.

TDS

“BoJ is more upbeat, upgrading the economic view for all 9 regions, which reveals growing confidence that the economy can withstand Omicron. The more positive assessment suggests BoJ will revise higher its growth and inflation forecasts for the coming fiscal year. Rising input costs and rising household inflation expectations also point to a higher inflation forecast.”

Standard Chartered

“We expect it to maintain the policy balance rate at -0.1% and the 10Y yield target at c.0%. Recent macro data such industrial production (IP), exports and job growth indicates that the economy has slowly rebounded from the virus shock and global supply bottlenecks. However, we think the rebound was mild and will need to be watched to ascertain its sustainability, going forward, especially with concerns about the Omicron variant and its impact. We expect the BoJ to discuss the issue of inflation at the meeting. Headline inflation has stayed benign, with no short-term inflation pressure expected. Nonetheless, Japan is unlikely to be immune to global inflation pressure caused by supply bottlenecks. Rising China PPI pressuring import prices and a weak Japanese yen (JPY) are key concerns for future CPI prints.”

Deutsche Bank

“The BoJ is unlikely to see much change now but reputable press reports are suggesting they are ready to become more hawkish in the coming months with a credible Reuters story late last week suggested they are prepared to raise rates before inflation reaches 2%. This is still someway off but if the BoJ can become more hawkish then that says something about the global direction of travel for monetary policy.”

Danske Bank

“Bank of Japan meets on Tuesday where no change is expected but we will listen closely to policy signals given Friday's Reuters story that BoJ may hike policy rates prior to hitting 2% inflation.”

ING

“Like in recent instances, we expect the meeting to be a non-event for JPY: the BoJ should unsurprisingly revise its growth forecasts lower, and its inflation forecasts higher, while signalling no changes in the policy mix.”

UOB

“Our monetary policy outlook is unchanged as the uncertain near-term growth outlook and potentially even weaker inflation outlook (due to crude oil price correction) keeps our view that the BoJ will not be tightening anytime soon and will maintain its massive stimulus, possibly at least until FY2023.”

SocGen

“We expect the BoJ to maintain its current main monetary policy (of YCC and ETF purchases). We are looking for an increase in the core CPI (CPI excluding fresh food) forecast for FY22 from +0.9% in October to +1.1% due to the rise in crude oil prices and the depreciation in the yen. We also expect the BoJ to change its assessment that ‘the downside risk is greater’, reflecting the change currently underway in corporate pricing behaviour and inflation expectations against a backdrop of soaring raw materials prices. However, we believe price outlooks are highly unlikely to reach the 2% target during the forecast period to FY23. Furthermore, even if price risk assessments do not change, this does not necessarily mean there would be a change in the policy of continuing monetary easing. On the other hand, we do expect the growth outlook to be lowered from 3.4% in October to 2.8% in FY21, reflecting the effects of behavioural and supply restrictions due to the spread of the Delta variant over the summer, and the growth outlook for FY22 to be raised from 2.9% to 3.5%, boosted by the government's economic measures.”

Citibank

“Despite media reports indicating the BoJ is debating an interest hike potentially, the BoJ is expected to keep its policy on hold at this week’s monetary policy meeting. It is considering raising the core CPI outlook for FY22 to 1% levels from 0.9% as of October, according to some reports, but in that case we would expect the BoJ to emphasize exogenous contributions such as commodity price spikes.”