Key Takeaways
The BoJ voted unanimously to maintain all of its
monetary policy settings unchanged, including yield
curve control (YCC).
The assessment of the economy and related risks
were also left unchanged from April, when the last
quarterly Outlook Report was released.
On inflation, the BoJ continues to expect CPI excluding
fresh food to decelerate toward the middle of fiscal
year 2023. During the press conference Governor
Ueda continued to express uncertainties over the
outlook for wage and price pressures.
Recent wage data were weaker than expected. It will
take another few months to confirm how much of the
3.7% wage rise resulting from the Shunto negotiations
will filter into actual core earnings.
Ueda has repeatedly stressed that next year’s Shunto
negotiations will confirm whether wage and inflation
pressures are sustainable.
The window of opportunity to adjust YCC may be quite
narrow. Waiting until the September or October
meetings may provide greater clarity over the passthrough
of Shunto negotiations. However, spillovers
from the US recession at the turn of the year will
challenge the macro rationale for a policy shift.
The fate of YCC is therefore finely balanced. We
expect the most likely change will be a widening of the
tolerance band around the 10-year JGB trading range
to +/-75bps, perhaps at the July meeting. But the
opportunity to make changes could yet be missed.