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Jun 04 - 12:55 PM

MUFG Forecasts BoJ Policy Shifts: Taper in June and Rate Hike in July

By eFXdata  —  Jun 04 - 10:45 AM

Synopsis:

MUFG predicts that the Bank of Japan (BoJ) will begin tapering its Quantitative Easing (QE) program in June, followed by a modest rate hike in July. This anticipated policy shift comes in response to persistent inflationary pressures and the evolving economic landscape in Japan.

Key Points:

  1. June Tapering Plans: The BoJ is expected to signal a gradual reduction in its monthly JGB purchases, which are currently approximately JPY 6 trillion. The plan is likely to be flexible, with no fixed numerical targets, allowing adjustments based on market conditions.

  2. July Rate Hike: A 15 basis point increase is forecasted for July, reflecting the BoJ's response to sustained inflation, particularly in services. This would be a significant move, considering the current global economic context.

  3. Inflation and Economic Indicators: Despite a general slowdown in inflation, services inflation in Japan remains high, with the Services Producer Price Index (PPI) reaching levels not seen since 1991, excluding tax increase effects. Additionally, PMI Output Price indices have risen, and upcoming changes such as the end of utility subsidies and tax cuts from June are expected to further stimulate spending and inflation.

  4. Yen Valuation: The yen's trajectory is closely tied to these policy shifts and broader G10 central bank actions. A stable or strengthening yen depends on the BoJ's follow-through on these plans and the avoidance of renewed rate hikes by other major central banks.

Conclusion:

MUFG's outlook suggests a pivotal period for Japanese monetary policy, with significant implications for the yen and broader financial markets. The effectiveness of these measures will depend on the BoJ's ability to balance growth and inflation dynamics effectively.

Source:
MUFG Research/Market Commentary

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