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Japan

Respite for BoJ doesn’t weaken case for a policy tweak

Pressure on the Bank of Japan’s Yield Curve Control framework eased this week. On the campaign trail for the Upper House election, where inflation has emerged as a key concern, Prime Minister Kishida said that monetary tightening would do more harm than good. Even more welcome for the BoJ, pressure emanating from the bond market has dropped back too. It had to buy less than a tenth as many JGBs this week as last. Some might feel that this reduces the need to shore up the policy framework. But a respite provides a window in which to make it more resilient.
Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

24 June 2022

Japan Consumer Prices (May 2022)

While inflation didn’t rise any further in May, it will remain above the BoJ’s 2% target until early-2023, while underlying inflation will approach 2%. However, the Bank won’t respond with tighter policy. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

24 June 2022

Japan Flash PMIs (Jun. 2022)

The PMIs suggest that supply shortages are still holding back manufacturing output and adding to price pressures. On a more upbeat note, the surveys also point to a strong pick-up in consumption as the economy rebounds from the Omicron wave and international tourists return. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

23 June 2022
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BoJ at the barricades

While inflation is still far lower in Japan than in most places, rapid increases in the prices of some everyday purchases have made it a political focus. A Nikkei poll following the Bank of Japan’s meeting at the end of last week found that nearly half of respondents thought that the BoJ should call a halt to ultra-loose policy. Another, more pressing challenge to Yield Curve Control (YCC) is coming from the bond market. The policy’s success in its first five years is indicated by the fact that the Bank was able to reduce its bond purchases substantially after YCC was introduced. But this month, as yields overseas have risen, the BoJ has been forced to buy more JGBs than ever before to keep yields within the target band. This pace of purchases cannot be sustained. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

Yen to weaken further, domestic demand picking up

While the Bank of Japan was clearly in no mood today to give any ground to the bond traders testing the ceiling of Yield Curve Control, it would be even less keen to effectively shut down the JGB market by hoovering up the outstanding bonds it doesn’t already own. As such, we  think it will try to relieve pressure by raising the ceiling before long. However, that wouldn’t be enough to put a lasting floor under the yen, which we still expect to end the year weaker than it is today.  Elsewhere, the jumps in machinery orders in April and in import volumes in May are encouraging signs that domestic demand is rebounding strongly. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

A reprieve for Yield Curve Control

The Bank of Japan gave no ground at all to bond traders today as it left all its major policy settings unchanged. Governor Kuroda was resolute in claiming that Yield Curve Control has no limits in his press conference. But the likelihood is that defending the current ceiling on 10-year yields will require bursts of heavy JGB purchases. To prevent its bond holdings swelling to unsustainable levels, we think that the BoJ will choose to widen the tolerance band from ±0.25% to ±50% before long. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

Japan External Trade (May 2022)

Export volumes recovered a bit in May, but they are likely to stay weak in the near term until supply shortages dissipate and allow exporting automakers to ramp up production again. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

How changes to yield curve control might affect JGBs

We think the Bank of Japan will widen the tolerance band around its 10-year Japanese Government Bond yield target, and that the yield will consequently rise by around 25bp. But there is a clear risk of a larger and more disorderly sell-off than that. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

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