BOJ kept monetary policy steady; watch BoJ CPI forecast as a potential boost to USDJPY
BOJ kept monetary policy steady by unanimous vote, as widely expected. They maintain the pledge to increase the monetary base at an annual pace of JPY 60-70tn. The BOJ semi-annual report will be out at 3pm local time; watch the CPI forecasts which could provide a potential boost to USDJPY. The April report usually carries forecasts up to the next fiscal year (FY13), but our economists believe Kuroda could extend the forecast horizon to FY 2015 (up to Mar 2016). Expectations is for CPI forecast to be raise to 2% in 2015, but we would not exclude the possibility that the BoJ will forecast a number somewhat higher than 2%, thus explicitly acknowledging its willingness to tolerate some inflation overshoot. Meanwhile, with the March national CPI printing softer than expected at -0.9% YoY versus forecast of -0.8% and -0.7% prior, the pressure for aggressive BOJ easing remains intact. We continue to expect a break of the key 100 level. Inflation expectations have been negatively correlated to JPY; the move up in the 10Y inflation swap since December (0.35% – 1.10%) tracked USDJPY’s rally.
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BNP Paribas