VIEW: ING: Inconvenient Truth For The BoJ

ING write “the BoJ's policy choices are fairly limited, which puts the central bank in a difficult situation. Inflation has been above target for more than a year with no clear signs of slowing down, especially core.”

• “The weak JPY is likely to pile more pressure on import product prices alongside the recent rise in global commodity prices, while strong tourism should also push up private service prices.”
• “Surveys and other activity data showed quite a solid recovery in services, which should remain the case in the second half of the year despite global headwinds.”
• “However, wage growth remains quite lacklustre. As a result, the possibility of the BoJ hiking rates will be off the table for quite some time.”
• “Yet, the higher-for-longer narrative seen in the U.S. pushed up 10Y JGB yields to the 0.8% level, which immediately raised concerns for the BoJ.”
• “We think it needs to respond to the recent market move with another YCC change – and perhaps even consider the option of scrapping the policy.”
• “We believe that changes in forward guidance could be a good way to communicate with the market on its future policy move.”