Reply To: Bank of Japan No Change to Monetary Policy, JGB Yield Band Hard Celling to 1.00%


The BoJ Governor Ueda said that a “big shift” in the inflation view could merit a tighter stance which sets a high bar for the coming forecast changes at the July meeting to matter. He also made it clear that they don’t feel compelled to set up any such moves in advance in Favour of saying “It’s inevitable that sometimes there’s a certain element of surprise.”

The moves were widely expected, but there was clearly a tail in the market that was positioned for less dovishness. The yen weakened by about ½% to the USD and rose toward 141. The 10-year yield slipped just beneath 40bps. The Nikkei rallied by about 0.7%.

On the dovish side, the standard narrative is that Japan has seen many false starts to inflation since its property and market bubbles burst 3+ decades ago and been burned by premature actions from the BoJ in the past.

Japanese inflation is also buoyed by some transitory drivers such as the ongoing lagging effects of last year’s yen weakness and higher oil prices. Japanese real wages also remain weak at least according to the hard data to date, and so this missing link is waiting for clearer evidence. Add to this uncertainty over the external environment.