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BoJ unlikely to adopt any policy change, board likely to downgrade inflation forecasts and remain dovish: ANZ Research

The Bank of Japan (BoJ) is not expected to adopt any change in its monetary policy, although the board is seen to downgrade inflation forecasts and remain dovish, according to the latest report from ANZ Research.

Recent economic and financial market developments have not favoured the BoJ’s 2 percent inflation goal. The growth pulse has been disappointing, with Q1 and Q3 2018 GDP falling. So the BoJ’s output gap measure has become less positive, while the Cabinet Office’s measure has returned to being in deficit.

As a consequence, underlying price pressures are likely to moderate, and the recent strengthening of the JPY and decline in oil prices will have an disinflationary impact on the CPI.

As the BoJ is expressing concern about the negative implications of the consumption tax increase (from 8-10 percent in October) on household purchasing power, it is becoming increasingly difficult for the bank to consider an exit strategy from its very easy policy settings this year.

"We expect the BoJ, at its 22–23 January policy meeting, to downgrade its inflation forecasts and to keep policy unchanged. We also expect it to leave its forward guidance unchanged by keeping rates low (the policy rate at -0.1 percent and the 10-year yield around zero percent) for an extended period," the report added.

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