Comments via ING on their Bank of Japan outlook:
- Policy rate hikes are unlikely this year, but adjustments to the Yield Curve Control are possible as early as June. One option would see the BoJ target 5-year government bond yields (JGBs) instead of the current policy, which caps 10-year yields at 0.5%.
- Rationale: With strong wage growth and a modest service-led recovery, core inflation is expected to stay above the long-term average in 2023. There will also be growing calls to correct distortions in the bond market. So, the BoJ should eventually adjust or abandon the YCC policy during the year and pave the way for policy rate normalisation in 2024.
- Risk to our call: The BoJ is concerned about the economy returning to deflation. The BoJ will carefully examine if the strong wage growth is just a one-off event this year before deciding whether to postpone the policy change to next year.
Earlier previews:
- BOJ meet this week - preview - YCC to be abandoned but not until July
- BOJ meeting preview - Deutsche Bank expect a policy revision, 3 scenarios
- Has BOJ Gov Ueda dismissed any change to YCC at this week's policy meeting? Looks like it
And, we will likely get some further clues from the BOJ Gov. today:
Bank of Japan
