VIEW: J.P.Morgan: BoJ Took The First Step Toward Policy Normalisation

J.P.Morgan note that “as evidenced by media reports over the last weekend, political momentum is rising for the normalisation of monetary policy, including the removal of the negative interest rates. Although the BoJ has reiterated its policy of continuing monetary easing by positioning the YCC adjustment as a measure to improve market functionality, we don’t doubt that this decision would be the first step toward policy normalisation."

• As of now, we do not expect inflation to accelerate enough to make the BoJ confident about starting a monetary tightening cycle in 2023. However, we believe that the possibility of earlier policy normalisation, including a removal of negative interest rates, has been increasing, through some kind of policy review or revising of the Accord (which Governor Kuroda denied) under the new Governor."
• "Thus, in the January monetary policy meeting, the focus point should be whether the BoJ’s inflation outlook, which is a condition for policy normalisation (even if the normalisation would be driven by political pressure), will be revised up.”