BoJ likely to stand pat in March and ease in July

The Bank of Japan is expected to highlight that rate cuts are not aimed at competitive devaluation of the JPY. In a short period, multiple cuts might be difficult.  It appears to have become less urgent and more difficult for the central bank to ease in March. The BoJ is expected to ease in July instead of March. BoJ is expected to stand pat in March partially as more stable markets have reduced the urgency for the action.

Moreover, the NIRP component of the current policy that was adopted on 29 January, only took effect in mid-February. It takes time to assess how negative rates impact real economy's and financial institutions' behaviour.  Additional cuts in March would have been seen as a direct response to exchange rates possibly became more difficult amidst G20 warnings against competitive devaluation. That said, the BoJ is expected to further ease from fundamental viewpoint.

Meanwhile, Japan's Q1 real GDP is expected to contract 0.1% q/q saar. The recently released Japan's Outlook showed February's manufacturing PMI dropped sharply, and said it requires attention it is not revised upward subsequently. The industrial production figures for January and METI forecast indices for March and February showed that output is likely to fall 0.3% q/q in Q1.