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MNI BoJ Preview - January 2023: Stick Or Twist

Markets have backed the BoJ into corner, we look for no change in policy settings, but have no strong conviction.

EXECUTIVE SUMMARY

  • The recent round of well-documented press speculation, indicating that the BoJ will conduct a review of the side effects of its ultra-loose policy settings at the upcoming monetary policy meeting, coupled with the shrouding of trust in the Bank’s communication channels after last month’s surprise YCC tweak, has led to a meaningful market test of the BoJ’s will ahead of the meeting.
  • We would suggest that the Bank will have a preference towards holding policy settings steady and lean into this as our baseline pre-meeting assumption.
  • Expect a mark-up in underlying inflation forecasts, although the Bank will not suggest that its inflation goal has been met, given the cost-push nature of the move in inflation and the want to foster a meaningful wage growth.
  • Click to view full preview: BOJ Preview - January 2023.pdf

Fig. 1: 10-Year JGB Yield Vs. Japan 10-Year Swap Rate

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EXECUTIVE SUMMARY

  • The recent round of well-documented press speculation, indicating that the BoJ will conduct a review of the side effects of its ultra-loose policy settings at the upcoming monetary policy meeting, coupled with the shrouding of trust in the Bank’s communication channels after last month’s surprise YCC tweak, has led to a meaningful market test of the BoJ’s will ahead of the meeting.
  • We would suggest that the Bank will have a preference towards holding policy settings steady and lean into this as our baseline pre-meeting assumption.
  • Expect a mark-up in underlying inflation forecasts, although the Bank will not suggest that its inflation goal has been met, given the cost-push nature of the move in inflation and the want to foster a meaningful wage growth.
  • Click to view full preview: BOJ Preview - January 2023.pdf

Fig. 1: 10-Year JGB Yield Vs. Japan 10-Year Swap Rate

Keep reading...Show less