BoJ Preview: Forecasts from six major banks, reviewing covid aid package

The Bank of Japan (BoJ) will announce its policy decision on Friday, December 17 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks. The BoJ is seen standing pat on its main stimulus while weighing an extension to its covid aid program.

Standard Chartered

“We expect it to maintain the policy balance rate at -0.1% and the 10Y yield target at c.0%. Japan’s economy suffered weak growth in Q3 due to production disruptions as a result of COVID-19 restrictions. We expect the BoJ to maintain its current policy stance for some time, unlike other central banks. This is largely because the BoJ faces a very different inflation backdrop to peers, with headline CPI inflation still close to 0%. If the Fed and ECB tighten liquidity, the BoJ may come under pressure to join global policy coordination.” 

Deutsche Bank

“Although there had been an expectation that the bank would revise their special pandemic corporate financing support program at this meeting, the emergence of the Omicron variant has changed the situation. Given the next meeting is only a month later, the view is now that they’ll maintain a wait-and-see stance in this meeting and adjust the policy in January, although a revision remains possible this week if more positive evidence is found on the new variant.”

BBH

“Some reports suggest the bank is considering an announcement that it will allow its emergency corporate lending programs to expire in March as scheduled. However, other reports suggest some policymakers would rather delay the announcement until the impact of omicron is better known, perhaps at the next meeting on January 18. New macro forecasts will be released then as well, perhaps offering a better opportunity to tweak policy. This week, it should be steady as she goes for the BoJ.”

SocGen

“The BoJ will apply -0.1% to the policy rate balance in the current accounts. It will purchase the necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around 0%. The BoJ will maintain the current rate guidance that it will continue with QQE with YCC, aiming to achieve the price stability target of 2%, as long as is necessary to maintain that target in a stable manner. The BoJ will maintain the current economic assessment that Japan's economy has picked up as a trend, although it has remained in a difficult situation due to the impact of COVID-19 at home and abroad.”

BMO

“The BoJ will wrap up a hectic week with its announcement on Friday. Nothing meaningful will change.”

ING

“Recent history suggests little to no impact from BoJ rate decisions on the yen and this time should be no different. All policy tools are set to remain untouched, while we think (and this seems to be the consensus) that the BoJ will extend the emergency corporate funding programmes as the Omicron variant generates new risks to the outlook.”