Sticking to stimulus: More than 80% of the 50 surveyed economists say Ueda will leave the yield-curve control programme unchanged. — AFP
Tokyo: The Bank of Japan (BoJ) is widely expected to retain its ultra-easy monetary policy today, with market focus falling on whether authorities use a revision to their inflation forecast as an excuse to tweak the yield-curve control (YCC) programme.
Governor Kazuo Ueda and his fellow board members will keep the key short-term rate at minus 0.1% at the end of their two-day meeting, all economists surveyed by Bloomberg predicted.
More than 80% of the 50 surveyed economists also said the central bank would leave the YCC mechanism unchanged.
People close to the BoJ have signalled the same outcome.
Officials see little urgent need to address the side effects of the YCC at this point, although they expect to discuss the issue, people familiar with the matter told Bloomberg last week.
In retaining its easy stance, the BoJ is expected to further cement its position as a global outlier in monetary policy after the Federal Reserve raised interest rates Wednesday and with the European Central Bank predicted to follow suit.
Widening interest rate differentials may put further downward pressure on the yen.
Hours before the BoJ announced its policy stance, Tokyo’s consumer inflation excluding fresh food, a leading indicator for national trends, likely decelerated below 3% for the first time since last September, lending credence to Ueda’s contention that price growth is nearing a peak and backing his case for sticking with stimulus.
In addition to discussing policy, the board is expected to revise sharply higher its forecast for consumer inflation excluding fresh food this year.
People familiar with the matter flagged a likely revision to about 2.5%, up from 1.8% projected just three months ago.
Some economists said the higher inflation target could be used as a justification for altering YCC.
Some 18% of those surveyed forecast a tweak, the highest ratio since the BoJ conducted a policy review in March 2021.
Goldman Sachs, JPMorgan Chase and Morgan Stanley economists are among those predicting a YCC adjustment.
Implied volatility in Japan’s bond futures has climbed to a three-month high, signalling wariness over the potential for near-term gyrations.
Japan’s inflation has continued to hover well above the BoJ’s 2% target, with core consumer price index growth accelerating to 3.3% in June in the latest data.
Even so, Ueda has pushed back against calls for normalisation, saying authorities aren’t confident the upward momentum will be sustained.
He has maintained that snuffing out nascent inflation too soon would do more damage than letting it persist too long.
Former BoJ chief economist Hideo Hayakawa told Bloomberg the central bank would likely lower its inflation projection for next year to underscore that it’s yet far from normalisation.
Still, Hayakawa expects a widening of the targeted range for yields on 10-year government bonds this week.
Taro Kimura, Bloomberg economist, said: “Recent rise in the yen and yields suggest some traders are betting governor Ueda may spring a Kuroda-style surprise and tweak the yield-curve settings. We, and a large majority of forecasters, expect it to hold.”From a political perspective, a policy change would not bode well for Prime Minister Fumio Kishida.
Such a development might destabilise financial markets just as Kishida, who handpicked Ueda, is already facing his lowest approval ratings since taking office, according to some polls.
The BoJ typically releases its policy statement around noon together with its quarterly economic outlook report. Ueda usually starts his media briefing at 3:30pm here. — Bloomberg
