BOJ to leave monetary policy unchanged – Nomura

Analysts at Nomura expect the BOJ to leave monetary policy unchanged.

Key Quotes

“On 20-22 July, a number of media outlets including Jiji Press and Reuters reported that the BOJ could discuss adopting a more flexible monetary policy. However, in view of the increased focus on the side effects of the current easing policy on earnings at financial institutions, we think all that will happen at the upcoming meeting is that methods of making adjustments toward a more flexible monetary policy will be debated and considered, and that there will be no immediate change in policy.”

“In the Outlook for Economic Activity and Prices (Outlook Report), which will be released at the same time, we think the main focus will be on an analysis of the factors behind the inflation rate remaining lackluster.”

“We forecast the core inflation projections for FY18 and FY19 (excluding the effect of an increase in the consumption tax rate) in the Outlook Report will each be lowered by 0.3pp. We think the projection for FY20 will be maintained at +1.8%, as in the April Outlook Report.”

“We forecast that the projection for GDP growth in FY18 will be lowered slightly, reflecting the decline in January-March 2018 and the carryover effect from that, but that the growth projections for FY19 and FY20 will be maintained.”

“A key point is how the above debate related to taking a more flexible approach to monetary policy is described in the post-meeting statement (or sometimes in the Outlook Report), including whether it is actually mentioned.”

“Similarly, a key point in the governor's post-meeting press conference will be how specific his statements are on what was discussed about adopting a more flexible monetary policy and specific ways to do this.”

“We think these points will also be a litmus test for gauging when a decision will be taken to change the guideline for market operations to pave the way toward a more flexible approach to monetary policy.”