Goldman: BOJ To Leave Policy Unchanged, To Raise GDP Outlook.
BOJ begins central bank bonanza this week. We expect the BOJ will leave its policy stance unchanged on Tuesday (Monday night ET), maintaining both its short-term (-0.1%) and long-term (around 0%) interest rate targets. In the quarterly “Outlook Report”, the BOJ will likely raise its real GDP outlook slightly (around 0.1-0.2pp), but keep its outlook on core CPI unchanged
Barclays: On Hold, To Revise Up Growth Forecasts.
This week’s BoJ MPM (Tuesday) will be a key focus. The BoJ is widely expected to keep its policy unchanged and we look for the BoJ to revise up its growth forecast while maintaining its inflation outlook largely unchanged (Figure 6). In the year ahead, we expect the BoJ to raise its 10y yield target by 10-20by in the fall and look for annual JGB purchase to be gradually reduced to JPY60trn from its JPY80trn target (which already declined to 74trn) on the back of accelerating core inflation. In this light, Governor Kuroda’s press conference will be keenly watched, especially given the recent operation surprises. However, Kuroda is likely to talk down any speculations for early normalization or further reduction in rinban operations and emphasize the continuity of YCC as core CPI, while surprising to the upside, is still negative at -0.2% y/y in December. The prospect for continued YCC would likely leave USDJPY vulnerable to external markets, such as UST yields and global equities.
BofA Merrill: BoJ To Maintain The Status Quo, Staying Long USD/JPY.
We expect the BoJ to maintain the status quo at the 30-31 Jan MPM, keeping the short rate and 10yr JGB yield target unchanged. The BoJ is reducing JGB purchases, now focus is when it will remove the ¥80tn guideline for annual purchases...USD/JPY continues to trade nervously over the new US administration's policies. We believe the fiscal implication of a strong dollar eventually wins over protectionist preference for a weak dollar but the direction of US currency policy still carries a high degree of uncertainty at this point. However, policy divergence between the Bank of Japan and Federal Reserve is increasing and underpins our expectation for a higher USD/JPY this year. We turned to a near-term bull on USD/JPY earlier last week and staying lomg USD/JPY.
NAB: No Surprise From BoJ.
We don’t expect any surprises from the BoJ todayThe Bank is likely to upgrade its outlook for the economy, but since inflation remains stubbornly low more of the same is still required. The positive price effect from a weaker yen can only be achieved if yen weakness is sustained for an extended period of time. The BoJ’s YCC policy has succeeded in weakening the yen thanks to the rise in US Treasury yields. Near term uncertainty surrounding Trump’s policy plans suggest a range trading environment is likely. As the year progresses, however, we still anticipate UST yields to track higher and with a BoJ committed to its YCC policy, USD/JPY remains likely to end the year closer to ¥120. A trade war outbreak is a growing risk to our outlook and under such scenario JPY safe haven attributes could easily see USD/JPY trade sub ¥100 again.
BNPP: BoJ On Hold; Long USD/JPY Still One Of Our Core Top Trades.
The Bank of Japan (BoJ) holds a monetary policy meeting on 31 January. Our economists expect policy to be left on hold for now, although they are forecasting a 30bp hike in the 10y target rate and a deepening of the front end negative interest rate at the October meeting later this year. Our non-consensus forecast of a rise in USDJPY to 128 by the end of 2017 remains our top trade idea, and is largely driven by our view that monetary policy divergence will be the greatest between Japan and the US. We expect real yield differentials to move against the JPY, even with a potential shift in BoJ policy in the second part of the year
ING: Little Focus For BoJ Mtg; USD/JPY Towards 116.80 This Week.
Tomorrow’s BoJ meeting has a little more focus than usual in that the BoJ is struggling to keep 10 year JGB yields near 0%. At 8GMT/CET tomorrow, the BoJ announces its bond buying schedule for February. Any increases/tweaks in the JGB buying scheme looks JPY negative. We see $/JPY to 116.80 this week
UOB: Eyes On Forecasts Changes.
All eyes will be on the BoJ’s monetary policy decision later today. Odds are that the central bank will probably maintain its current monetary policy settings, but all eyes will be on any forecast changes in the BoJ’s outlook.
UniCredit: A None-Event; We Maintain Our Out-Of-Sync Bearish USD/JPY View.
At its last meeting in December, the BoJ left all policy measures unchanged but sounded a tad more upbeat in its assessment of economic developments. Since then, industrial production has shown more signs of improvement, while global growth prospects (and, by implication, the outlook for Japanese exports) have strengthened. Consequently, we expect there to be no change in policy instruments, but it is possible that the economic outlook will be upgraded a bit more. This could convey the message that the central bank is gaining (incrementally) more confidence. Additionally, the recent increase in Japanese bond yields is unlikely to be seen as alarming, given that it is predominantly driven by global, rather than domestic, factors. In a nutshell, we think the meeting will be a non-event for the exchange rate; we still have a bearish view on USD-JPY as the cross seems to be out of sync with developments in relative real rates but acknowledge that the price action these past two days has increased the risk of our view being wrong – at least in the short term.
Credit Agricole: BoJ Taper Can't Be Excluded, Staying Bearish JPY On Crosses.
Despite JPY strengthening in the new year, our positioning indicator suggests the market’s short JPY position remains at multi-year extremes. While first-tier data on the labour market and industrial output will attract some attention from the JPY next week, the main local focus will be the BoJ meeting and the Board’s Outlook Report. Over the past year, the JPY TWI has strengthened in the week of all but one of the BoJ meetings. Admittedly, BoJ meetings have usually occurred the same week as FOMC meetings, and a stubbornly dovish FOMC has contributed to JPY strength during those weeks. While the FOMC also meets next week, its members have been sounding more hawkish and so could contribute to a breaking of this pattern. But we also see a risk of a more upbeat BoJ in its first Outlook Report for the year. Indeed, the weaker JPY in Q4 will lead to stronger inflation and, to some extent, cyclical data readings in the coming months. And JPY depreciation has already helped push medium-term inflation expectations higher. BoJ Governor Haruhiko Kuroda recently said that Japan’s economy has improved a lot and that it will grow well above expectations. There is also some risk of the BoJ scrapping its guidance as when it comes to bond purchases. The central bank may have stepped up purchases in bonds due in 5–10 years, but the increase is not fully offsetting the reduction in shorter-term purchases. Our economists note that the net increment in JGB holding in 2017 will be way below the present guidance of JPY80trn. As such, a formal taper announcement cannot be excluded. Any announcement of a formal taper would likely contain some sticker shock and strengthen the JPY, as it would lose some of its appeal as a funding currency. We still significant risk of further downside in JPY crosses.
Deutsche Bank: On Hold But BoJ Now Just A 'Secondary Engine' For USD/JPY.
We think the BoJ will likely decide to maintain current policy tomorrow. Japan's economy is improving gradually, and share prices and the USD/JPY have also recovered much of the ground lost during Trump trading. We think the BoJ will be able to generate bull pressure on the USD/JPY if it continues to cap growth in long-term JGB yields under YCC policy as the outlook for rate hikes in the US strengthens. BoJ policy can be viewed as a secondary engine for USD/JPY appreciation. If the primary engine of the US economy loses momentum, we think the USD/JPY would be prone to downside irrespective of what the BoJ does as a secondary engine. However, as far as we can judge from what the Trump administration is doing, we do not think pessimism regarding the feasibility of it delivering on policy promises will gain traction soon. As aggressive US fiscal policy prompts the Fed to hike interest rates, we think BoJ policy will prove more effective for yen depreciation as it rides the tailwind of a stronger dollar. Although the market has become less interested in BoJ policy, the BoJ is acting inconspicuously to support the USD/JPY. At the same time, we think interest in the US administration's currency policy will likely increase. The Trump administration has indicated it wants to include currency clauses in bilateral trade agreements. If this does not proceed smoothly, we note that US intervention might not only check the USD/JPY rate but also pose a potential risk for BoJ policy as a yen-depreciation factor. However, while it is difficult to imagine that the BoJ would soon reverse monetary easing owing to US pressure, we think fiscal and monetary policy in the US itself would likely rapidly strengthen the dollar-bull impact. We think pressure on the BoJ would ease temporarily if the USD/JPY fell owing to checks by the US. We at least see no scenario for the USD/JPY to turn bearish.
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