BoJ Could Likely Maintain The Same Dovish Stance

The Bank of Japan will announce its monetary policy decision on Friday, June 17 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks.

The BoJ could most likely remain the same dovish stance by maintaining its policy settings. What’s more, the central bank is unlikely to offer anything on FX but may tweak the yield curve control (YCC) cap. The Bank of Japan is likely to maintain ultra-low interest rates on Friday and stress its resolve to support a fragile economy with massive stimulus, a move that may further weaken the yen by highlighting a policy divergence with the rest of the world.

The BOJ seems to be caught in a dilemma. With Japan’s inflation well below that of Western economies, its focus is to support the stil-weak economy with low rates. But the dovish policy has triggered sharp yen falls, hurting an economy heavily reliant on fuel and raw material imports.

Standard Chartered

“We expect the BoJ to keep the policy balance rate unchanged in June. Rising US and global bond yields have turned yield differentials further against the JPY, pushing the currency to multi-year lows. However, the BoJ does not see JPY weakness as detrimental to Japan’s economy; instead, a weak JPY is expected to support exports and improve firms’ profitability. While core CPI inflation has risen to over 2%, the BoJ sees the rise as transient as it is mainly driven by base effects. The central bank is likely to maintain its dovish stance, aiming to achieve sustainable CPI.”

Danske Bank

“The BoJ has made it very clear that they do not see the weak yen as a problem. With still modest inflation pressure, we expect no changes to the bank’s accommodative stance. In other words, the BoJ remains an outlier among advanced central banks.”

TDS

“BoJ likely to leave all policy levers unchanged. The central bank is leveraging a weak JPY to break the deflationary mindset, but pressure is growing to make a change to YCC in the coming months.”

SocGen

“We expect the BoJ to maintain its main monetary policy. Going forward, our main scenario is for the USD/JPY rate to stop exceeding 130 yen and for the core CPI to continue to be greater than 2.5% YoY. Therefore, we expect the BoJ to maintain its current policies – at least under Governor Kuroda.”

ING

“No change is expected. Governor Kuroda and other members have publicly stated on several occasions that the BoJ will retain its current accommodative monetary policy stance, as the recent cost-push inflation will be temporary and that a weak yen benefits the economy as a whole. The current JPY weakness is expected to deepen with rate differentials widening.”

UOB

“Although Japan’s inflation has climbed in recent months, BoJ Governor Kuroda does not see 2% inflation in Japan as sustainable ‘when it’s triggered by a rise in commodity prices and worsening trade factors’ with wage growth still absent. So, both Japan’s lacklustre economic recovery and the challenging growth outlook will imply the BoJ will not be tightening or signalling to do so anytime in 2022.”