BoJ likely to maintain 'QQE with YCC' policy at its meeting next week, says Danske Bank

The Bank of Japan is expected to maintain its 'QQE with yields curve control' policy at its monetary policy meeting, scheduled to be held on October 31. It is widely expected that the BoJ will keep its ultra-loose monetary policy unchanged and the announcement should not have a significant impact on price actions, Danske Bank reported.

The Japanese economy is currently going through a solid recovery. Private consumption has witnessed some momentum earlier this year but overall the upswing is driven by the global economic recovery and Japanese exporters enjoying tailwind from the weakening of the JPY. This is also the picture we see in Q3, where exports have generally been strong.

After Prime Minister Shinzo Abe’s Liberal Democrats regained the majority of seats (284/465) in the Japanese election for the lower house on 22 October, Abe has a renewed mandate for his economic policy and is free to reappoint governor Kuroda for another term next year. With July’s exit of BoJ board members Mr. Sato and Mr. Kiuchi, the hawkish camp is effectively empty.

At the September meeting, only new member Mr. Kataoka opposed the policy decisions, but that was because he considers them too hawkish, not too dovish. Thus, there currently does not seem to be anyone left to oppose the current BoJ course.

CPI inflation has increased throughout 2017, but this has mainly been the result of rising energy prices. Hence, the underlying price pressure in Japan remains very low, despite solid growth and a closed and increasing output gap, and the BoJ’s 2 percent inflation target is currently nowhere within reach.

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