Focus on Forecasts as BOJ Kicks Off New Term: Decision-Day Guide

(Bloomberg) -- The Bank of Japan is widely expected to keep policy unchanged at its meeting on Friday, at which the central bank will also update its inflation forecasts.

All 47 analysts surveyed by Bloomberg predict no change in asset purchases and the yield-curve control program. Most see no change until at least April 2019, with only seven of them forecasting a shift this year, down from 14 in March.

This is the first meeting for the two new deputy governors, including Masazumi Wakatabe, who was vocal in calling for more stimulus before he joined the board. He toned that down in confirmation hearings, but there is a lot of interest in seeing what he says now that he’s on the board. This will also be the first meeting for Governor Haruhiko Kuroda since his appointment for another five years.

Kuroda said last week he will continue with the current easing persistently, while watching risks including global trade disputes. With the economy growing and a measure of supply and demand at the tightest in years, analysts say the board will see little need to alter policy or drastically change its outlook.

Key Points

What to watch forWhy
A change in the price outlookInflation forecasts are expected to remain largely unchanged. Any surprisingly large revisions may indicate an earlier-than-expected change in policy direction. 
The BOJ will release its forecast for fiscal 2020 for the first time.
Deputy Governor Masazumi WakatabeWakatabe advocated additional easing before joining the bank in March. Chances of him dissenting from the majority are seen to be slim but if he joined board member Goushi Kataoka in expressing problems with current policy, it would increase the dovish tone on the board.

Private economists are skeptical about the BOJ’s forecasts for hitting the 2 percent inflation target, with 85 percent in the survey saying they don’t expect it to happen before Kuroda’s new term ends in 2023.

Focus on Forecasts as BOJ Kicks Off New Term: Decision-Day Guide

Former BOJ chief economist Kazuo Momma said he expects the bank will be forced to push back its estimated time frame for reaching the target. That would be the seventh time it’s been pushed back. Currently the BOJ sees it happening around the fiscal year starting in April 2019.

What Our Economist Says....

“A Wakatabe dissent or suggestion to add stimulus wouldn’t mark the beginning of a shift in the policy stance. But it would mean two vocal doves on the board (Goushi Kataoka has dissented at every meeting since he joined last year), and spice up any discussions on how to prepare for an eventual exit.”

-- Yuki Masujima, Bloomberg Economics. Read his full preview here.

Policy Recap

Key elements of the BOJ’s yield-curve control policy:

  • Negative interest rate of minus 0.1 percent charged on some of the reserves financial institutions keep at the BOJ.
  • Yield target of about 0 percent for 10-year Japanese government bonds.
  • Increase JGB holdings by about 80 trillion yen ($734 billion) a year.
  • Increase holdings of exchange-traded funds by 6 trillion yen a year and Japanese real-estate investment trusts by 90 billion yen annually.

The policy statement and quarterly outlook report are usually released in the early afternoon, followed by a press conference by Kuroda at 3:30 p.m. local time.

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