boj rate announcement preview (jan 2017)
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WHEN

Tuesday 31 January

 

Rate Announcement: **02:30-03:30 GMT, 11:30-12:30 JST

BoJ Outlook Report: ~1 hour after Rate Announcement

Kuroda Press Conference: 06:30 GMT, 15:30JST

 

*** The rate announcement is notoriously unpredictable, but usually falls between 02:30-03:30 GMT, our friends at ForexLive have helpfully compiled a record of previous times for the release >>Here 

 

 

The BoJ is not expected to change policy at the first meeting of 2017. Currently the bank conducts JPY 80trln bond purchases annually, targets the 10-year yield at 0.00% and the short-term policy rate is -0.10%. Conditions have seemed to turn in the BoJ’s favour in recent months, while the JPY is also depreciating which should boost inflation and exports.

 

Recent data releases support the BoJ's view that the economy is in the midst of a "moderate recovery trend." Manufacturing continued to pick up in December, with the Nikkei PMI improving to a 12-month high. Also, a solid pick-up in December consumer confidence-it rose to the highest in more than three years-suggests consumption remains on track to accelerate in 2017.

 

That effect has not materialised yet however, the most recent inflation figures showed both headline and underlying inflation weakened in December. This was attributed to the lingering effects of last year’s strengthening of the JPY lowering the price of goods.

 

The only monetary policy action the BoJ are expected to take is an extension of various liquidity measures including the Loan Support Programme to the end of March, Growth-Supporting Funding Facility and the Stimulating Bank Lending Facility by a year.

 

The main focus, therefore, will be Governor Kuroda's press conference. On 25 January, the BoJ skipped JGB purchases in the 1-5 year sector, prompting tightening fears. However, the BoJ subsequently boosted the amount of its 5-10 year purchases on 27 January, in a clear signal that it was committed to maintaining its 10-year yield target. Based on this Commerzbank believe “Governor Kuroda will repeat the message in his post-MPM press conference, reiterating that the central bank will use all tools at its disposal-including fixed-rate bond purchase operations-- to keep yields pinned down under Yield Curve Control.”

OUTLOOK REPORT

The Bank of Japan (BOJ) also release their outlook report one hour after the decision. The positive signs in the economy have led some to predict that the BOJ could raise their GDP projections from 1.0% for 2016 and 1.3% for 2017. BOJ Governor Haruhiko Kuroda has added fuel to the fire by stating his personal estimate for growth is 1.5%.

 

Inflation, however, has remained subdued. The most recent print saw headline CPI at 0.3%, while the core measure remains stuck in deflationary territory at -0.2%.  Compared with the GDP forecasts, the BOJ’s CPI projections are already quite bullish at 1.5% annually for FY17 and 1.7% for FY18. Bank of America writes “while the JPY has weakened since the BOJ last updated its inflation forecasts, and upstream price gauges have shown clear signs of bottoming out, it will likely take a much more fundamental improvement in domestic inflation pressures-such as a convincing acceleration in wage growth-before the board raises its CPI outlook further.”

 

On balance, the BOJ still has enough reasons to be cautious on the outlook. Policy makers will likely leave policy on hold and the outlook broadly unchanged, while hoping that impending fiscal stimulus will be sufficient to boost the economy.

PREVIOUS OUTLOOK REPORT FORECASTS
Source: BoJ
Source: BoJ
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