Preview of the ... BOJ meeting! (you weren't expecting that, were you?)
The Bank of Japan meet next week (October 30 and 31), their statement at its conclusion will also by accompanied an updated Outlook Report
- "Outlook for Economic Activity and Prices" includes revised GDP and inflation forecasts
Capital Economics are out with a preview already.
Their major points:
Lower inflation forecasts underline case for loose policy
- Capacity shortages have intensified and inflation has picked up
- But Board's inflation forecasts remain too high and will have to be lowered
- Boost from higher energy prices set to fade so policy tightening remains unlikely
More (in brief)
the Board's inflation forecasts will underline that policy tightening remains a distant prospect
Bank may nudge up growth forecast for next year
- There are some signs that the economic expansion started to sputter in the third quarter (However, Japan's GDP data are notoriously volatile, and sentiment surveys suggest that economic conditions have continued to improve. So even if we're right, the Bank probably wouldn't be too disheartened)
- we expect the Bank to leave its GDP forecast for the current fiscal year unchanged ... but ... may nudge up its GDP forecast for the coming year, perhaps to 1.5%
inflation has continued to accelerate. The 0.7% y/y rise in consumer prices in August was the strongest since autumn 2014, allowing for the impact of the sales tax hike. However, in July the Bank was forecasting a 1.1% rise in consumer prices in the current fiscal year, which will be difficult to achieve. In the first five months of the fiscal year, inflation averaged just 0.5%.
- The Bank will therefore have to cut its forecast for FY 2017 yet again to below 1%. Looking further ahead, capacity shortages have intensified, the labour market remains very tight, and soaring pay of part-time workers provides early indications that cost pressures are strengthening. However, most of the recent pick-up in inflation has been driven by higher energy prices rather than by stronger underlying inflation.
In the absence of major changes in policy, the focus will remain on the scale of the Bank's asset purchases
In the year to October, the Bank bought just ¥63 trillion of JGBs, down from over ¥80 trillion at the peak
- we think the Bank will reduce its purchases further to ¥50 trillion by the end of next year and to ¥40 trillion by the end of 2019
- It should be clear that this reduction in purchases is a logical consequence of the shift to a yield target rather than a withdrawal of stimulus. The credibility of the yield target combined with the shrinking pool of securities means the Bank can defend its target with a smaller amount of purchases. So far, the Bank has reiterated its target of buying ¥80 trillion of JGBs per annum. It was always likely that the quantity target would eventually conflict with the yield target, and we think that the Bank will eventually drop its quantity target altogether - perhaps as early as this month.
If you DGAF about the BOJ but are wanting a preview of the ECB today:
- Barclays expect President Draghi to announce a nine-month extension of the APP at a lower pace of EUR30bn per month
- Morgan Stanley outlook for the ECB meeting this week and BoE next
- UBS on what to expect from the ECB this week
- ECB meeting & EUR/USD scenario analysis ('Cheat Sheet' preview)
- EUR/USD: There is a 'usual pattern' around this week's ECB meeting
- HSBC say ECB to slow purchases to EUR40bn/month for an additional 6months
- BoA / ML ECB preview: "offsetting less QE with stronger forward guidance on rates"
If you DGAF about the ECB there is this on a giant noise cancelling fork to read