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MNI BoJ Preview - April 2022: No Change Due, Even as JPY Dives

Executive Summary:

  • BoJ expected to leave its monetary policy settings unchanged
  • Governor Kuroda has recently noted that medium- to long-term inflation expectations do not show signs of rising
  • 10y breakevens at the highest level since mid ’15, but are still operating at less than 50% of inflation target
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MNIBOJPrevApr22.pdf

Given the BoJ’s continued (and understandable) insistence that current inflationary pressures are cost-push not demand-pull related, we expect the Bank to leave its monetary policy settings unchanged at the end of its April monetary policy meeting.

Figure 1: USD/JPY Implied Vols at highest since COVID

Source: MNI/Bloomberg

Ultimately, wage growth remains limited in Japan, which hampers the development of sustainable underlying inflationary impulse, while BoJ Governor Kuroda has recently noted that medium- to long- term inflation expectations do not show signs of rising. Note that Japanese 10-Year breakevens sit at the highest level observed since mid ’15, but still print shy of the 1.0% level i.e. operating at less than 50% of the BoJ’s inflation target, with a similar dynamic observed in Japanese 5-Year/5-Year inflation swaps.

As such, Kuroda recently reaffirmed the need for continued monetary easing, with a commitment to overshooting the Bank’s inflation target given the elongated period of sub-target price rises.

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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