BoJ expected to maintain rates, BofA says and discusses USD/JPY

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BoJ expected to maintain rates, BofA says and discusses USD/JPY
Credit: © Reuters.

On Monday, Bank of America (NYSE: BAC ) provided insights into the upcoming Bank of Japan (BoJ) monetary policy meeting scheduled for Friday, 26 April 2024. Market analysts, including those from Bank of America, predict the BoJ will maintain its current target range for the uncollateralized overnight call rate at 0-0.1%.

This consensus follows the BoJ's exit from the negative interest rate policy and a significant overhaul of its monetary framework on 19 March.

The BoJ's recent shift from extraordinary to "normal" easing has set the stage for the central bank to assess the impact of these changes before considering further adjustments. Governor Ueda, speaking at a seminar on Friday, indicated that the bank's immediate focus would be on evaluating the effects of the recent policy modifications on the economy and inflation.

Consequently, no changes are expected in the BoJ's guidance on maintaining accommodative financial conditions and continuing its Japanese Government Bond (JGB) purchases at the current volume.

Despite the anticipated hold on policy changes at the upcoming meeting, investors are keenly anticipating the quarterly Outlook Report, Governor Ueda's post-meeting press conference, and the Summary of Opinions, due on 9 May, for clues about future rate hikes and adjustments to JGB purchases. Governor Ueda's recent statements, including those at a seminar and in an interview with Asahi Shimbun on 5 April, suggest that the BoJ's decision to end its negative interest rate policy was influenced by a growing certainty of achieving its 2% inflation target.

Governor Ueda also acknowledged that wage trends and their potential impact on prices, especially in the services sector, are critical data points for the BoJ. Moreover, he noted the influence of currency movements on the wage and price cycle, suggesting that a weaker yen could necessitate a monetary policy response.

The BoJ's projections from January anticipate ex-energy core inflation to average 1.9% in fiscal years 2024 and 2025. However, recent developments in the price-wage cycle that led to the March policy revision may prompt the BoJ to adjust its inflation projections upwards, potentially to 2% or higher. Additionally, the BoJ is expected to introduce its forecasts for fiscal year 2026, with ex-energy core inflation around 2%, while possibly revising down its GDP forecasts for fiscal year 2024 due to anticipated negative growth impacted by supply side shocks.

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