BoJ Preview: Forecasts from nine major banks, null chances to suddenly change course

The Bank of Japan (BoJ) is scheduled to hold its next Monetary Policy Committee (MPC) meeting on Thursday, September 22 at 03:00 and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks. 

The BoJ is widely anticipated to maintain the status quo, leaving rates at record lows of -0.1% and the yield curve control policy on hold. 

Standard Chartered

“We expect the central bank to keep the policy balance rate unchanged in September, unlike other central banks, which have rapidly raised rates on inflation concerns. The BoJ aims to sustainably achieve its price stability target of 2%. Inflation has been driven by supply shocks and a weak JPY; the central bank has repeatedly said that cost-push inflation is undesirable given the negative impact on the economy. Also, government debt is high at close to 260% of GDP. In such a scenario, rate hikes would weigh on the fiscal balance and hinder fiscal spending for economic growth.” 

Danske Bank

“While external factors, i.e. monetary policy in the US, is pressuring BoJ, inflation is still muted in Japan, although on the rise. That is why the BoJ clings to yield curve control and why we expect BoJ to stay put. Changes on FX intervention and/or YCC will have to be forced upon BoJ from the outside.”

SocGen

“We expect the BoJ to maintain its main monetary policy, i.e. yield curve control (YCC) and ETF purchases. However, the bank is set to end, as scheduled, a pandemic-relief funding scheme this month and also adjust the policy guidance that flags the COVID-19 pandemic as the top economic risk, because the funding needs of small and medium-sized enterprises have stabilised and the use of this scheme has decreased even as COVID-19 spreads again.”

Commerzbank

“The BoJ will continue to stick to its expansionary monetary policy and not send out any signals pointing towards normalisation. On the contrary, the prospect of weaker growth for the global economy and the fact that the inflation rates might possibly have exceeded their peaks over the coming months might confirm the BoJ in its approach.”

Deutsche Bank

“We expect the BoJ to remain the DM outlier by maintaining an easy policy stance while agreeing to end their special pandemic funds-supplying operation as scheduled at the end of the month. The policy divergence will continue to weigh on the yen which is around its weakest levels versus the dollar since the early 90s, but we do not expect that augur intervention, as fundamentals are driving the weakening and reduce the chance any intervention is effective.”

Citibank

“We expect the BoJ to keep monetary policy unchanged, having maintained its stance that monetary policy is not targeted at forex in the midst of sharp yen depreciation against the dollar. The policy statement may be revised to reflect the termination of pandemic supports but the team expects the downward bias on policy rates to be retained.”

Wells Fargo

“BoJ policymakers have left rates on hold and in negative territory for all of 2022 and are unlikely to deliver any policy adjustments when they meet this week. With growth and inflation dynamics still underwhelming, we believe policymakers will keep monetary policy settings accommodative in an effort to spark economic activity and see a sustained push higher in inflation. With the yen underperforming significantly over the course of this year, speculation has grown that authorities could intervene in FX markets to stabilize the currency. These responsibilities would fall to the Ministry of Finance (MOF), although we believe MOF policymakers are unlikely to announce any intervention next week or in the foreseeable future. A weaker currency could support Japan's export sector and the broader economy, while also leading to higher inflation as well. In our view, MOF policymakers will prioritize growth and inflation dynamics as opposed to a more stable currency.”

OCBC

“Our base case is for BoJ to stand pat but do not rule out risk of YCC tweaks at some stage.” 

MNI

“BoJ will stand pat on monetary policy in the face of continuing economic weakness. While officials are monitoring rising inflationary pressures due to higher food prices and while a slide in the yen to a 24-year low against the dollar could potentially raise political pressure on the Bank to act, the BoJ's board will likely maintain an easing bias given that the output gap is in negative territory. Fears over downside risks to the economy could even prompt the bank to tweak guidance for short- and long-term policy interest rates to remain at present or lower levels.”