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BoJ unlikely to lift interest rates anytime soon

The Bank of Japan today upgraded its assessment of inflation risks to “broadly balanced” for the first time since 2014. However, it reiterated its pledge to keep expanding the monetary base until inflation exceeds 2% and also signaled that it will keep interest rates low. With inflation set to fall well short of the BoJ’s 2% target for the foreseeable future, the Bank won’t be able to tighten policy.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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Japan Data Response

Japan Flash PMIs (May 2022)

While the flash manufacturing PMI was little changed in May, the details suggest that supply shortages worsened yet again, weighing on output and lifting prices.

24 May 2022

Japan Chart Book

Tweak to Yield Curve Control still on the table

The Bank of Japan’s attempt to relieve pressure on the Yield Curve Control framework by offering to buy an unlimited amount of 10-year Japanese government bonds (JGBs) at yields of 0.25% for as long as necessary appears to have done the trick so far. Despite offering to do so every working day, the Bank hasn’t yet had to buy any bonds through the fixed rate method in May. The Bank’s latest confidence trick – along with the recent fall in global yields – has dissuaded the bond vigilantes for now. However, we think that the Bank will have to defend its ceiling with heavy purchases once again if – as we expect – US Treasury yields start rising again. And media reports suggests that some of the public are pinning blame on the BoJ for rising prices stemming from a weaker yen. As such, there’s still a good chance that the BoJ will ultimately decide to relieve pressure by widening its tolerance band on 10-year yields from the current ±0.25% to ±0.50% later this year.

23 May 2022

Japan Economics Weekly

Japan to outperform as cost of living rising less sharply

GDP shrank yet again in Q1 as the Omicron wave brought the recovery in consumption to a halt. However, services spending was more resilient than we had anticipated and there are good reasons to think that Japan’s economy will outperform other large advanced economies over the coming quarters.  

20 May 2022

More from Marcel Thieliant

Australia & New Zealand Economics Weekly

Australia’s consumer exuberance won’t last

The strong rebound in consumer spending in November is consistent with our view that GDP surpassed its pre-lockdown peak in Q4 already. And while the Omicron tsunami seems to have resulted in a renewed slowdown in consumption, mounting staff shortages and disruptions to goods supply will result in continued strong increases in consumer prices. The upshot is that we still expect the RBA to end its bond purchases in three weeks, though the sluggishness in wage growth means we don’t expect the first rate hike until early next year.

14 January 2022

Japan Economic Outlook

BoJ still facing no inflation pressure

The Omicron surge will cause a renewed fall in consumer spending this quarter. But we still expect GDP to return to its pre-virus path in the second half of the year. And while Omicron and any subsequent outbreaks may exacerbate supply shortages, inflation will remain well below 2%, allowing the Bank of Japan to keep policy very loose.   Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

12 January 2022

Australia & New Zealand Economics Update

Our key calls for 2022

We think that GDP growth in Australia will surprise to the upside. But with wage growth only approaching the 3% watermark the RBA would like to see by year-end, we expect the Bank to keep rates on hold. By contrast, we expect the RBNZ to hike interest rates a bit faster than most expect. Our view that commodity prices will continue to fall means that the Aussie dollar will weaken further.

11 January 2022
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