Outlook January 18, 2023 / 05:53 am UTC

BOJ Review: BoJ stays dovish

By Cephas Kin Long Yung

BoJ meeting on 18th January sends a dovish signal towards the market

BoJ has not changed its monetary policy, including YCC but announced new measurements for YCC

Inflation forecast in 2023 revised higher, 2023/24 GDP lower

The BoJ meeting on 18th December was widely expected to have little change to their monetary policy but market participants would be closely watching its forward guidance as some are speculating for any signals of an early exit from ultra-loose monetary policy. There were headlines crossing the wires over the previous weeks on changes in forward guidance in BoJ’s policy for early exit of loose monetary policy yet they did not materialize. .

Instead, the BOJ Board continue to bring surprise to the market by amending rules in its fund-supply market operation to assist in defending their YCC target. The amended rules would allow the BoJ to supply funds up to 10 years for financial institutions with collaterals on a fixed or variable rate. While there is no change 10yr JGB yield cap, this amendment signals the market BoJ's commitment in defending their YCC and also their ultra-loose monetary policy. It thus smashed market participant's speculation of an early exit of current policy

At the same time, BoJ has revised the CPI forecast for 2023 higher to 1.8% from 1.6%. GBP for 2023 and 2024 are also revised lower by 0.2% and 0.4% respectively. With the contradictive inflation picture, BoJ is perhaps looking at the growth picture to justify theiur comittment of loose policy.

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Analyst Declaration
I, Cephas Kin Long Yung, the lead analyst declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.