The Bank of Japan is likely to keep its current quantitative and qualitative easing program unchanged during its meeting tomorrow, with the yield curve control “aiming to achieve the price stability target of two percent, as long as it is necessary to maintain that target in a stable manner”, stated Societe Generale in a research report.

“The BoJ will likely continue to apply a negative interest rate of -0.1 percent on part of the current account deposits held at the bank and maintain its long-term JGB yield target at 0.0 percent”, said Societe Generale.

The central bank had upwardly revised its assessment of the economy to “Japan’s economy is likely to turn to a moderate expansion” from “although sluggishness is expected to remain in exports and production for some time, Japan's economy is likely to expand moderately thereafter” during its December meeting. The BoJ is expected to upwardly revise its growth and inflation outlook in the January outlook report.

After the October outlook report was released, the Japanese yen depreciated considerably and energy prices began rising again. It is expected that the central bank would upwardly revise its growth outlook and core inflation outlook for FY2017 from the current 1.3 percent and 1.5 percent respectively.

“There is a possibility that the BoJ will need to raise its long-term rate in order to show that the bank is not intentionally driving the depreciation of the yen some time in 2018. This is due to further expected strengthening of the US dollar and the expansion of US domestic demand could lead to Japan’s trade surplus against the US becoming a political issue”, added Societe Generale.