Bank of Japan preview: No easing next week -  Danske

According to analysts from Danske Bank, the Bank of Japan will not announce more easing on Thursday but they see they see the central bank adjusting its policy framework by abandoning calendar-based communications on when it expects to reach the 2% target.

Key Quotes:

“We do not expect the Bank of Japan (BoJ) to ease monetary policy as such. However, we expect it to adjust its policy framework by abandoning calendar-based communications on when it expects to reach the 2% target and instead pursue 2% inflation ‘at the earliest possible stage’.”

“We expect the BoJ to maintain its negative interest rate policy and keep the door open for additional rate cuts in the future. In addition, we expect it to adopt a more flexible approach to its quantitative target for annual increases in the balance of JGB purchases.”

“In addition, we expect the BoJ to adopt a more flexible approach with its quantitative target for annual increases in the balance of JGB purchases, as it is likely to have to continue its asset purchases for a longer period than it initially expected, and needs to improve the sustainability of its asset purchases in order to avoid premature tapering discussions. Moreover, adding more flexibility to its purchase scheme will also help to address potential undesirable issues relating to the shape of the yield curve.”

"According to the latest survey from JCER (Japan Centre of Economic Research), 30 out of the 50 (60%) analysts that responded to the survey expect the BoJ to ease in September. Among the analysts that expect more BoJ easing this month, most expect it to buy other assets while more than half of the analysts that look for more easing in September expect the BoJ to cut interest rates. Pricing in the Japanese money market implies only a little probability of a rate cut in September, while the overnight interest rate is priced to fall to -0.25% in 12 months’ time.”