Going into the last BoJ meeting there was significant speculation surrounding the path that the BoJ would take. This was made more complicated by the fact that Governor Kuroda is set to leave his position in April and his successor has still to be decided. For a runner’s list see here. The number one contender is Masayoshi Amamiya. He is credited with playing a crucial role in the BoJ’s asset-buying program and keeping ultra-low interest rates. So, perhaps this is partly why there was so little change in BoJ policy this time if the successor is intending to keep the BoJ on its ultra-loose policy path? This speculation aside the BoJ decision was a clear maintenance of the ultra-loose monetary policy stance.

The decision

The BoJ fought the rising speculation that it would shift policy. It kept interest rates unchanged at -0.10% and kept the Yield Curve Control Target unchanged for the 10-year JGBs at 0%. Both the yield band and the yield target were unchanged.

Dovish updates on GDP, but CPI projections are still below 2%.

The projections on Real GDP were cut as follows:

  • Fiscal 2022 median forecast was cut to 1.9% from 2.0%.
  • Fiscal 2023 median forecast was cut to 1.7% from 1.9%.
  • Fiscal 2024 median forecast was cut to 1.1% from 1.5%.

Projections for Core CPI were still below the BoJ’s 2% target for 2023 and 2024:

  • Fiscal 2022 median forecast was raised to 3.0% from 2.9%.
  • Fiscal 2023 median forecast was maintained at 1.6%.
  • Fiscal 2024 median forecast was raised to 1.8% from 1.6%.

However, the BoJ did recognise that inflation expectations are on the rise. The BoJ took this as a positive sign saying, ‘It takes time but prices will gradually rise towards the inflation target on the back of rises in inflation expectations and wage increases’. So, while the rest of the world fights inflation the BoJ is still trying to welcome it. It sounds like a disconnect of policy, but the BoJ is sticking to its ultra-loose monetary policy.

The takeaway

The BoJ is playing inflation as a transitory card in bold colours. It is doubling down. With the BoJ owning so many JGB there is a risk here that the market keeps trying to challenge the yield curve control policy and that the JPY finds buyers. JPY traders, be aware that there may still be more JPY strength to come.