FXStreet (Delhi) – Shuichi Ohsaki, Rates Strategist at BofAML, expects the BoJ to maintain its current quantitative and qualitative easing (QQE) policy at the Monetary Policy Meeting on 28-29 January.
Key Quotes
“In light of prices, recent survey results, and market movements, we understand how expectations of additional easing could arise, but the market turmoil we see originates overseas, so a policy change at this point might not be very effective. With few easing options left at its disposal, the BoJ will probably deploy those options when they are most effective.
Should the BoJ inflation forecast become unattainable, monetary policy conduct will have to be pursued with even greater caution (Is BOJ at its limits?). If current purchasing operations are maintained, the BoJ will hold 50% of outstanding JGBs at end-2017.
The BoJ will closely watch the effect of US rate hikes, China’s economy, and the decline of oil prices on Japan’s economy and prices. In particular, the BEI and inflation forecasts in various surveys are trending downward, a worrisome factor for the BoJ.
Due to the BoJ’s huge purchases of JGBs and the planned issuance reduction, our outlook that yields will remain low is unchanged. However, concern is also mounting that the decline in market liquidity might lead to sudden surges in volatility. Recently JGB yields have been low and stable, but could be destabilized by BoJ policy or developments in overseas bond markets (Rates forecast: revision due to slower than expected recovery).
While eyeing both the “bazooka” of quantitative easing expansion and its policy sustainability, the BoJ is likely to be pressed for some difficult policy judgments.”
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