The Bank of Japan may adjust its yield-curve control program at Friday’s monetary policy meeting to reflect recent strength in economic fundamentals, according to an outlying view from JPMorgan Securities Japan Co.
(Bloomberg) — The Bank of Japan may adjust its yield-curve control program at Friday’s monetary policy meeting to reflect recent strength in economic fundamentals, according to an outlying view from JPMorgan Securities Japan Co.
While 44 out of 47 economists surveyed by Bloomberg expect no policy change or tweaks at Friday’s meeting, Ayako Fujita, chief economist at JPMorgan Securities Japan, says disregarding ongoing price momentum and maintaining the current dovish stance risks leaving the BOJ “behind the curve.”
A key point is that with inflation near a decades high, real interest rates have fallen, making current settings even more accommodative.
If the “central bank continues to keep its dovish policy, which is not consistent with strong economic fundamentals, of course currency should depreciate,” Fujita said in an interview Thursday.
The yen touched 141.50 against the dollar on Thursday as it weakened following the Federal Reserve’s decision overnight to hold interest rates for now while flagging the likelihood of further rate hikes to come.
A third of surveyed economists see July as the most likely month this year for the BOJ to tweak policy. With attention focused on next month’s meeting and a likely raising of quarterly inflation forecasts, Fujita argues that moving in June would be appropriate.
The central bank will find it easier to tweak settings now rather than later given that market conditions are relatively calm and investors aren’t currently testing the central bank’s cap on 10-year yields, Fujita said.
Any move on Friday would be limited to minor tweaks, such as expanding the trading band around the 10-year yield target, she added.
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