BOJ: ‘We expect the status quo’ – Goldman Sachs

Goldman Sachs’ analysts out with their preview on what to expect from this week’s Bank of Japan (BOJ) monetary policy meeting on Wednesday and Thursday.

Key Quotes:

“We expect the status quo. The September MPM marks the debut of two new policy members. We think for now they will vote in line with Governor Kuroda.

Apart from reducing JGB purchases, which the BOJ has already begun doing, we would expect the BOJ to first raise its 10-year yield target, followed by the termination of its negative interest rate policy, and reduction of risk asset purchases.

The BOJ likely wants to ensure it has room for future policy moves by starting to normalize interest rates while the US is still in a tightening cycle. Also, a protracted period of ultra-low interest rates will accumulate side effects on the health of financial institutions, regional banks and life insurers in particular.

We think the BOJ would at least need to see new core CPI inflation (excluding energy and fresh food) stabilize above the 1% mark. Given that the BOJ has maintained that inflation expectations are formed adaptively, it could, under these conditions, argue that there is effectively no tightening in real interest rates.”