UBS Sees BoJ On Hold Next Week, But Shifting In April

The Swiss bank weighs in with its outlook for the BoJ meeting next week. It expects no major changes to the policy parameters but sees the central bank signaling strongly that it will shift in April. See below for more details.

UBS: "Despite the upside risk to the outcome of the spring wage negotiations due on 15 March (see "Shunto wage negotiation results may surprise us and market"), we expect the BoJ to stay on hold on 19 March.

All policy tools and forward guidances are likely to be maintained. Of course, we could be wrong, but we put the likelihood at 20% for March, 70% for April, and 10% for June or later. Our rational for no policy change in March is that there is no need to rush with negative output gap (no heated economy) and disinflation trend and communication to general pubic for the big policy shift (end of QQE with YCC) is far easier in April. It is hard to argue that wage growth is confirmed among small firms with the Shunto outcome on Friday as it basically covers only large firms at this time (see "Shunto preview: UBS expects 4.3%").

In April, the BoJ will hold a branch manager meeting before the policy meeting on 26 April and the managers will report anecdotal information on small firms' wages and price setting behaviour. Moreover, the BoJ Tankan due on 1 April probably will show a positive price setting behaviour of firms toward new fiscal year. In addition, Governor Ueda can explain reasons for the policy shift with the updated Outlook report due on the day of the policy meeting, which includes GDP and CPI projection through FY2026. At the same time, we expect the BoJ to send strong signals that the policy shift is imminent (i.e. April)."