BoJ likely to stand pat tomorrow, slightly revise up its FY20 GDP growth forecast: DBS Economics & Strategy

The Bank of Japan (BoJ) is expected to stand pat at its two-day monetary policy meeting, scheduled to be concluded tomorrow, according to the latest research report from DBS Economics & Strategy.

GDP growth should have contracted sharply by more than -5 percent (q/q saar) in 4Q19, in the aftermath of the October sales tax hike and the typhoon disaster, while CPI inflation should have remained weak at the sub-1 percent level as of December.

That said, the more recent developments, including the China-US trade deal, the bottoming of global electronics cycle and the weakening of the yen, should alleviate the pressure for the BoJ to further ease monetary policy, the report added.

On account of the JPY13 trillion fiscal stimulus package proposed by the government in Dec19 to restore growth momentum, the central bank may slightly revise up its FY20 GDP growth forecast during the quarterly outlook report this week (current: 0.7 percent), DBS further noted in the report.

In the bond market, the 10Y JGB yield has been hovering closely around the mid-point of the BoJ’s ±0.2 percent target range in the past one month, allowing it to keep the quantity of JGB purchases unchanged during the January operation plans.

The bond supply pressure stemming from the government’s fiscal stimulus appears to be manageable. Funding through the supplementary budget requires an issuance of deficit-covering bonds worth JPY2.2 trillion.

Meanwhile, under the general budget, the amount of JGB market issuance will stay roughly unchanged in FY20, with the increase of issuance concentrated in the 40Y space (JPY0.6 trillion).