BOJ Meeting This Week

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The BOJ will be meeting on Wednesday of this week. Bloomberg has outlined a few of the concerns here:

• Another expansion of the yield band to 0.75% or higher or the ditching of YCC altogether are among possible actions many analysts cite as risk scenarios. Such moves would likely push bond yields up, strengthen the yen and lower stock prices outside the banking sector.

• Even if there is no action taken this time, any sign of upcoming change will be closely watched.

• Forecasting no policy change, JPMorgan’s Ayako Fujita expects the BOJ to try to contain speculation over another adjustment. In doing so, the bank could indicate the desirable shape for the yield curve to help influence market expectations, she said.

• The bank may stress its message of buying more bonds and using various tools to keep yields under control. Earlier this month, the bank conducted a funds-supplying operation against pooled collateral that will last for two years. That was the first time that particular tool was used since the BOJ extended the maximum duration of operations to 10 years, when YCC was introduced in 2016.

• The BOJ’s new projection for consumer prices excluding fresh food may hit 2% or above for fiscal 2024, mainly due to base effects as government measures lower utility bills in fiscal 2023. With an expected roller coaster move in the price data, the bank may indicate it’s more important to look at consumer prices that exclude both fresh food and energy.

We believe the lower Nikkei, stronger Yen is a strong possibility with yields moving higher causing US yields to temporarily move higher as well. Although on that front, we would suspect US yields to be well supported especially at the front end and this would be more of a bear steepening from our purview.