Preview of the Bank of Japan monetary policy meeting for January 2019 that concludes today

Earlier previews and such:

Thoughts via Daiwa:

  • Some disappointing activity data - especially the lower base provided by the Q3 GDP report - will require a downward adjustment to its forecast for growth, at least for FY18 (currently 1.4%Y/Y).
  • The inertia of underlying inflation, step down in oil prices, and government plans to abolish pre-school education fees, demands a downwards revision to the BoJ's inflation projections. In our view, the Bank's forecast for core CPI in FY19 of 1.4%Y/Y (excluding the impact of the consumption) could be as much as 1ppt too high. But the updated Outlook Report will likely see the Board's median view nudged only modestly lower, with comfort still taken from its estimate of a positive output gap and tight labour market. So, the BoJ will remain constructive about the medium-term inflation outlook, albeit still reluctant to place a date on when the current 2% target might actually be achieved.
  • And it is also highly unlikely to adjust its key policy settings. Instead, Kuroda can note the flexibility afforded by the current framework, including the wide range (+/-20bps) around its zero per cent 10Y yield target.