20 Jan 2015
BOJ to downgrade inflation forecast - Nomura
FXStreet (Bali) - The BOJ is expected to leave its QQE policy unchanged at this week’s meeting, while is very likely to reduce its FY2015 inflation forecast from 1.7%, notes Yujiro Goto, FX Strategist at Nomura.
Key Quotes
"The BOJ is expected to leave its QQE policy unchanged at this week’s meeting (20-21 January). Expectations for BOJ easing into this meeting are limited, as both Bloomberg and JCER report that no BOJ watchers expect an easing. Thus, the impact on FX markets from a decision to leave policy unchanged should be small."
"The BOJ is very likely to reduce its FY2015 inflation forecast from 1.7%, as oil prices have declined since October; the magnitude of this reduction is worth monitoring. QQE expansion in October boosted inflation expectations, but the impact was short-lived as oil prices continued to decline."
"Consensus inflation forecasts have also declined recently. Inflation could undercut 0% temporarily and reductions to the BOJ’s inflation forecast would seem unavoidable. Its FY2015 forecast is likely to be lowered to at least 1.4%, the current government forecast. A larger reduction of its inflation forecast would likely increase market expectations of earlier BOJ easing, while easing expectations into the April meeting have already increased slightly, according to Bloomberg."
"As inflation momentum slows, the BOJ may decide to extend the deadline of its two loan support programmes and/or expand the size of these programmes this week. The BOJ expanded the size of its loan support programmes last February, which supported USD/JPY, and a decision to extend these programs in January could be viewed as a swift move. Even though extending the deadline would not be a positive for USD/JPY, if the Bank also expands the size of the programme, the decision could be supportive of USD/JPY in the near term."
"BOJ Governor Kuroda is likely to remain relatively optimistic on the inflation outlook, even after the likely lowering of inflation forecasts, and he will likely emphasize the importance of incoming wage negotiations again (see BOJ review: Maintains positive inflation assessment, 19 December 2014). Governor Kuroda’s optimistic stance can disappoint the market during the press conference."
Key Quotes
"The BOJ is expected to leave its QQE policy unchanged at this week’s meeting (20-21 January). Expectations for BOJ easing into this meeting are limited, as both Bloomberg and JCER report that no BOJ watchers expect an easing. Thus, the impact on FX markets from a decision to leave policy unchanged should be small."
"The BOJ is very likely to reduce its FY2015 inflation forecast from 1.7%, as oil prices have declined since October; the magnitude of this reduction is worth monitoring. QQE expansion in October boosted inflation expectations, but the impact was short-lived as oil prices continued to decline."
"Consensus inflation forecasts have also declined recently. Inflation could undercut 0% temporarily and reductions to the BOJ’s inflation forecast would seem unavoidable. Its FY2015 forecast is likely to be lowered to at least 1.4%, the current government forecast. A larger reduction of its inflation forecast would likely increase market expectations of earlier BOJ easing, while easing expectations into the April meeting have already increased slightly, according to Bloomberg."
"As inflation momentum slows, the BOJ may decide to extend the deadline of its two loan support programmes and/or expand the size of these programmes this week. The BOJ expanded the size of its loan support programmes last February, which supported USD/JPY, and a decision to extend these programs in January could be viewed as a swift move. Even though extending the deadline would not be a positive for USD/JPY, if the Bank also expands the size of the programme, the decision could be supportive of USD/JPY in the near term."
"BOJ Governor Kuroda is likely to remain relatively optimistic on the inflation outlook, even after the likely lowering of inflation forecasts, and he will likely emphasize the importance of incoming wage negotiations again (see BOJ review: Maintains positive inflation assessment, 19 December 2014). Governor Kuroda’s optimistic stance can disappoint the market during the press conference."