Bank of Japan policy meeting outlook: Maintain the status quo? Policy fix?
2023-03-10
■ According to the latest news, at the monetary policy meeting of the Bank of Japan in March, most people agreed to maintain the status quo of monetary policy
■ In any case, the market may change suddenly after noon and 16:30 on March 10
In this article, we want to summarize the latest progress of the Bank of Japan's monetary policy meeting (hereinafter referred to as the policy meeting) held from March 9 to 10. Most market participants, including the central bank, expect that the current monetary policy will remain unchanged at this policy meeting. On the other hand, a few people are also aware of the possibility of partial adjustment of monetary policy. Specifically, it is expected that the allowable fluctuation range of the yield of 10-year treasury bond will be expanded to "0 ± 1.0%".
There are two main reasons for maintaining the status quo. In other words, (1) the content of the recent speech of the members of the Bank of Japan Review Committee and (2) the time of the end of March of Japanese financial institutions were taken into account. （1） Review the statements of Nakagawa and Takata on March 1 and 2. Both members of the review committee held a negative attitude towards the adjustment at the policy meeting in March, saying that the revision of the yield curve control (YCC) policy implemented in December last year would take some time to evaluate. They also generally believe that a virtuous cycle of wages is necessary for sustained price increases. This led to the view that the policy could not be modified before the results of the spring labor offensive were determined. (2) The reason is that for Japanese financial institutions due at the end of March, rising interest rates often means an increase in losses (assessment/realization). In particular, due to the rise of overseas interest rates this year, many financial institutions' overseas bond investments have suffered losses, and Bank of Japan also has the intention to avoid useless chaos.
On the other hand, one of the reasons for policy revisionists is the "bond market survey" released by the Bank of Japan on March 1. The operational DI that shows the market participants' views on the operation of the bond market is - 64, which is the lowest level since the beginning of the survey (February 2015). The further deterioration of the function of the Japanese government bond market has been confirmed. It is further worse than - 51 in the last survey (November last year), which can be explained that the revision of the YCC policy by the Bank of Japan in December last year did not lead to the improvement of market operation. Judging from the statement made by the Bank of Japan at its policy meeting last December, the volatility range of the 10-year treasury bond yield is likely to further expand or abolish the YCC policy to restore the function of the Japanese treasury bond market
In any case, the policy meeting is expected to end at about 13:00 on March 10. After 14:30, Governor Haruhiko Kuroda's press conference will begin. The market may suddenly fluctuate suddenly and violently, so pay attention.