(Bloomberg) — Bank of Japan watchers see a policy shift coming much sooner than previously thought, following December’s yield band adjustments that rocked global financial markets.
(Bloomberg) — Bank of Japan watchers see a policy shift coming much sooner than previously thought, following December’s yield band adjustments that rocked global financial markets.
While a survey of 43 economists showed all but one predicting the central bank to leave policy unchanged next week, some 38% of respondents now forecast moves either in April, when a new governor takes the helm, or in June. That’s a jump from 15% in last month’s poll.
Looking a little further ahead, more than half of the economists see the bank moving toward normalization by the end of July.
Even with a baseline scenario of a policy hold in January, many analysts indicated that they held that view with far less conviction than they did last month. The upcoming gathering should still be considered a live meeting with a risk of back-to-back change, they said.
Click here for full survey results.
The survey results show that the surprise decision last month has caused a reassessment of the BOJ’s policy path. Many economists say it is now unclear how the BOJ will react to developments in the economy, prices and financial markets.
Governor Haruhiko Kuroda and his board decided to widen the bank’s 10-year yield target band last month, despite having characterized such a move as equivalent to an interest-rate hike earlier last year. In December, Kuroda described the widening as a way of improving market functioning.
Economists had generally thought policy would remain unchanged until sustainable inflation came into sight. Investors and experts are still trying to digest the decision and its implications after the move jolted markets across the globe.
“The confusion the BOJ created hasn’t settled down, in fact it’s spreading,” Naka Matsuzawa, chief strategist at Nomura Securities, wrote in his survey response.
Even after repeated denials from Kuroda, 76% of the analysts surveyed said the expansion of the yield band was a step toward normalization. Some 19% said it’s not, with 5% saying it’s hard to tell.
Read more: BOJ Is Said to See Little Need to Rush Big Yield Adjustments
Following the unexpected move, 79% said Kuroda is either very unlikely or unlikely to take further action before he steps down in April.
“The market function problem the BOJ aimed to improve still exists, and it’s doubtful that this was really what the BOJ was hoping for,” said Chotaro Morita, chief rates strategist at SMBC Nikko Securities. “It’s reasonable to see it as a precursor for bigger adjustments in the future.”
In a question that allowed multiple answers on expected next steps, 52% said the BOJ could decide on another widening of the yield band. The same percentage of respondents said calling a policy review could come next, while 48% said yield curve control could be scrapped.
“Last month’s meeting demonstrated that the BOJ can renege on previous communication when it’s pushed into a corner,” said Atsushi Takeda, chief economist at Itochu Research Institute. “It’s proof that the current policy framework is reaching its limit.”
As the guessing game for Kuroda’s successor heats up, most economists continued to see Deputy Governor Masayoshi Amamiya as the front runner to replace Kuroda. Former deputy Hiroshi Nakaso occupied a fairly distant second place. Three economists also named Hirohide Yamaguchi as a likely candidate.
The BOJ will release its latest quarterly economic projections along with its policy statement next week. Economists expect the central bank to revise up its inflation forecasts for all three years through fiscal 2024.
That may fuel speculation for policy adjustment, but the forecast for consumer prices excluding fresh food and energy is likely to show that the stable 2% inflation target is still far off, according to Ryutaro Kono, chief Japan economist at BNP Paribas SA. Nevertheless, he says the central bank will likely have to do more to improve market functioning.
“The BOJ is likely to be forced to widen its yield range again in the near future,” Kono said. “My base case is March, but I won’t rule out the chance of that happening at the January meeting.”
–With assistance from Sumio Ito.
(Updates with earlier clarification of nature of December changes)
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