Since the last BoJ meeting, economic data in Japan have improved; the Nikkei Average has rebounded, topping 19,000 at one point; and exchange rates have been relatively stable (yen appreciation versus the euro, depreciation versus the dollar).
The key issue will be how the BoJ regards the slowdown in core CPI growth in January (by 0.3ppt from the previous month to 0.2% YoY), owing to the decline in oil prices.
BofA Merrill Lynch notes in a report on Friday:
- During his press conference after the previous meeting (17-18 February), BoJ Governor Haruhiko Kuroda indicated the BoJ would basically wait and see as long as a temporary decline in inflation, owing to a pullback in oil prices, does not lead to a decline in inflation expectations.
- Given inflation expectation remains stable, despite a significant slowdown of core CPI growth, we think the BoJ sees no urgency in considering additional easing at this time.
- Spring wage negotiations are a key determinant for future monetary policy, and the results will be out after the MPM. We continue to hold downward bias for JPY and JGB yields, and watch wage negotiations closely as the next catalyst
