Bank of Japan review - holding still in 2019
The Bank of Japan (BoJ) concluded their first meeting this year dishing out the expected moves, including a downward revision to their inflation outlook. As it is, the central bank’s inflation target still appears to be a stretch.
The January BoJ meeting saw short-term interest rates kept at -0.1 percent, just as the 10-year Japanese Government Bond (JGB) yield target was maintained at around zero percent. The pledge to keep JGBs purchase at a steady rate had also remain unchanged in the January meeting, altogether yielding no change within markets or JPY pairs.
Meanwhile, expectations for the revision of inflation forecasts had been met with the lowering of fiscal 2018 core CPI to 0.8% from 0.9% and 2019 core CPI to 0.9% from 1.4% in October 2018, with the lower oil prices blamed for the development. Quarterly report from the BoJ had also noted the usual risks within markets, including the most talked about US-China trade friction. That said, the BoJ had also held on to the positive outlook towards growth, expecting it to remain steady even in the face of the consumption tax hike in October this year. While fiscal 2018 GDP for the period ending March this year had been revised down to 0.9% from 1.4%, fiscal 2019 GDP forecast had simultaneously been lifted to 0.9% from 0.8% previously.
The inflation conundrum
The key takeaway from the latest meeting had perhaps been the wavering conviction of achieving the bank’s 2% target. One would note that the latest core CPI had arrived at 0.7% year-on-year, slowing to the weakest rate since May 2018. Certainly, BoJ governor Haruhiko Kuroda had emphasized in the press conference that the target will eventually be reached, but the timing had been one to elude the central bankers time and time again. The significant strengthening of the yen since December and the dependency on oil prices to lead inflation growth will also unlikely induce changes in outlook in the near term. This is particularly given the likelihood for crude oil prices to keep to a consolidation trend caught between OPEC and co.’s support alongside weaker demand expectations on the back of slowing global growth momentum.
USD/JPY externally driven
In terms of the implications, BoJ governor Kuroda’s emphasis on achieving inflation target prior to normalizing monetary policy keeps the hands tied for the central bank. This stagnant outlook for the central bank’s course may well keep the relevancy of upcoming meetings to a minimum for markets, allowing external forces to become the driver for its currency among others.
Look to the slew of events, ranging from the US-China trade talks, US earnings and Fed meeting in the coming week to sway USD/JPY and Japanese markets.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
See an opportunity to trade?
Go long or short on more than 16,000 markets with IG.
Trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.
Live prices on most popular markets