Goldman Sachs and Bank of America adjusted their predictions for the Bank of Japan’s (BOJ) upcoming policy change following Governor Kazuo Ueda’s dovish stance at his inaugural policy meeting. Both institutions now foresee a modification to the central bank’s yield curve control (YCC) program in July rather than June, with a possible change in yield targets from 10-year to 5-year bonds. This shift in expectations has been echoed by Barclays and UBS after Ueda reiterated his commitment to monetary easing, causing the yen to weaken significantly against the euro.
BOJ Awaits More Data Before Yield Curve Control Adjustment
Izumi Devalier, an economist at Bank of America Securities, commented on Ueda’s remarks, suggesting that the BOJ seeks additional data before making any policy changes. By delaying the YCC adjustment until July, the BOJ can assess further Tokyo inflation data, national CPI figures, and the Tankan survey results.
The recent projection from the BOJ indicates that inflation will remain below 2% in fiscal 2025, with downside risks to this forecast. Ueda has also expressed the need for an improved long-term outlook and its probability as key factors for considering a YCC adjustment. Japan’s stock market, bolstered by better corporate governance and potential policy normalization, is expected to outperform global counterparts, as per Man GLG.
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Key Indicators for Japan’s Market Growth and Policy Normalization
Man GLG’s head of Japanese equities, Jeffrey Atherton, expressed medium-term optimism and emphasized the accelerated pace of change in Japan. The Man GLG Japan CoreAlpha Equity fund, which Atherton manages, has seen an 18% return over the past year, surpassing 94% of its peers. Atherton highlights corporate earnings and the next two BOJ decisions as critical indicators of potential policy normalization.
With the BOJ and the Japanese government aiming for stable inflation around 2%, and the country’s reopening after COVID-19 restrictions, consumer spending is likely to increase, benefiting corporate earnings. Despite the rally in Japanese stock indexes, they remain below historical peaks, and Atherton remains hopeful that Japan’s market will continue to grow in the foreseeable future.
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In conclusion, the revisions by Goldman Sachs, Bank of America, Barclays, and UBS regarding the BOJ’s next policy change illustrate the cautious approach taken by Governor Kazuo Ueda. As the central bank awaits more data, market players will be closely monitoring inflation and policy decisions to better understand their implications for the Japanese economy. The optimism surrounding Japan’s stock market, fueled by factors such as improved corporate governance and potential policy normalization, bodes well for the nation’s financial future. While the exact timeline for the BOJ’s policy adjustments remains uncertain, the coming months will be crucial in shaping the trajectory of Japan’s economy and stock market.
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Frequently Asked Questions
What did Ueda's stance prompt?
Governor Kazuo Ueda's dovish stance during his first policy meeting prompted Goldman Sachs and Bank of America to adjust their predictions for the Bank of Japan's (BOJ) next policy change. Both institutions now expect the central bank to modify its yield curve control (YCC) program in July rather than June.
Which yield targets may change?
The financial institutions anticipate that the BOJ may switch its yield target from 10-year to 5-year bonds as part of the upcoming policy change.
Are other banks reassessing?
Yes, Barclays and UBS are also reassessing their expectations for the BOJ's policy change following Governor Ueda's commitment to monetary easing.
How has the yen reacted?
Ueda's commitment to monetary easing has led to the yen weakening significantly against the euro, reaching its lowest level in 14 years.
What data will BOJ examine?
The BOJ will examine three more Tokyo inflation data points, three sets of national CPI figures, and the Tankan (the central bank's largest quarterly corporate survey) before making a decision on the policy change.