Goldman Weigh Up BoJ & Yield Outlooks

Goldman Sachs write “as widely expected, the BoJ left policy unchanged at its meeting this Friday. At the press conference, Governor Ueda attempted to clarify his comments on NIRP exit, noting that they did not signal higher odds of a change by year-end, and the Bank’s assessment of its policy risk balance is still skewed to an inflation undershoot.”

• “Our economists maintain their view that the BoJ’s next policy change will most likely be in April 2024, when next year’s Shunto wage negotiation will allow it to reliably assess whether feedback between wages and inflation is occurring.”
• “That said, they note that the bank could revise up its FY23-24 core and new core CPI forecast at the next meeting, though that by itself would not necessarily signal a shift in policy.”
• “Given the somewhat long timeline for another change, we continue to think that the Bank’s path of least resistance is to allow 10y JGB yields to drift higher (our fair value estimate has now drifted up to 80bp) by intervening less, and possibly reducing net purchase amounts of JGBs.”