Source: Wall Street See
Although most of Wall Street expects the Bank of Japan to continue to hold steady, they are still hopeful for the possibility of a rate hike, with JPMorgan and Bank of America predicting a possible 15 basis point hike. According to market consensus, the Bank of Japan will gradually reduce its purchase scale of long-term bonds, and it is expected to decrease to a speed of 3 trillion yen per month within the next one to two and a half years.
On Tuesday, the Bank of Japan launched the heavy monetary policy meeting in July. Wall Street expects that the Bank of Japan will keep interest rates unchanged but announce its quantitative tightening (QT) plan, gradually reducing the scale of bond purchases. In terms of product structure, products with operating income of 10-30 billion yuan have respective revenues of 401/1288/60 million yuan.
On Wednesday, July 31, the Bank of Japan will announce the July interest rate decision, followed by a press conference by Bank of Japan Governor Haruhiko Kuroda.
Despite most expectations on Wall Street that the Bank of Japan will continue to maintain the status quo, they still remain hopeful for the possibility of a rate hike. Analysts at the ING Group predicted in a report issued last week that the interest rate (ceiling) may rise from the current 0.1% to 0.15%, while Bank of America and JPMorgan predicted that the interest rate may be as high as 0.25%, or an increase of 15 basis points.
JPMorgan pointed out that the market is expected to have a 40% chance of a rate hike in July, but if the Bank of Japan chooses not to hike, there may be more aggressive fluctuations in the yen interest rate.
Citigroup said that if the July decision is in line with market expectations, the Japanese stock market will not experience huge fluctuations, and it is expected that the yen-to-US dollar exchange rate will return to its low point of 165 yen per dollar in the coming months. Previously, due to expectations of a rate hike, the yen-to-US dollar exchange rate surged and is currently hovering around 154.
"Virtuous cycle" has not yet been formed, and the Bank of Japan is not willing to take risks in raising interest rates.
According to media reports earlier, Bank of Japan Governor Haruhiko Kuroda told Congress in June that the Bank of Japan may raise interest rates based on "economic, price, financial data and information" at the time.
Currently, Japan's CPI in June was 2.8%, unchanged from May, while the core CPI, which excludes fresh food prices, accelerated to 2.6% from 2.5%. Overall inflation rates have exceeded the Bank of Japan's target of 2% for more than two consecutive years.
The so-called "core in the core" CPI (excluding fresh food and energy prices) - a key indicator of the Bank of Japan's inflation measurement - rose from 2.1% to 2.2%.
Although inflation has reached or even exceeded the Bank of Japan's target rate, the Bank of Japan has been focusing on confirming whether inflation is in a "virtuous cycle," namely whether higher wages continue to drive price increases.
The Japanese Trade Union Confederation (Rengo) said on July 3 that large companies with 300 or more union-supported employees have raised wages by 5.19%, while small companies have raised wages by 4.45%. The union claims that this is the largest wage increase in 33 years.
According to the latest report from Nomura Securities, although there have been gradual changes such as rising wages and prices in companies, household spending has not responded enough to wage increases, and it has failed to further push up commodity prices, indicating that wages and prices have not yet formed a "virtuous cycle."
Nomura Securities expects that the Bank of Japan will maintain its policy interest rate at the upcoming monetary policy meeting, and Citigroup holds the same view.
Citigroup believes that if the Bank of Japan decides to keep interest rates unchanged, the outlook report and news conference on monetary policy that will be released later may convey increased confidence in the inflation trend based on expectations of wage increases and rising inflation.
If the upcoming data meets expectations, the Bank of Japan may explicitly state that a rate hike in September is appropriate.
What is the specific QT plan?
The Bank of Japan announced in June that it would reduce the scale of purchasing Japanese government bonds "to ensure that long-term interest rates are more freely formed in financial markets."
It is widely expected that the Bank of Japan will gradually reduce the scale of purchases of long-term bonds and is expected to decrease to a speed of 3 trillion yen per month within the next 1 to 2 and a half years.
According to data released in March, the Bank of Japan currently purchases about 6 trillion yen (39 billion US dollars) of Japanese government bonds per month. Media calculations show that as of July 19, the Bank of Japan holds a total of 579 trillion yen in Japanese government bonds.
According to media reports citing anonymous sources:
The Bank of Japan may gradually reduce its bond purchases in several stages, in line with the dominant market view on the pace, in order to avoid an unwelcome surge in yield.
JPMorgan also pointed out that if the BOJ's QE plan is more hawkish than expected, it could cause swap spreads to narrow along the curve.
Citi's forecast is more aggressive, estimating that the BOJ could plan to gradually reduce its purchase of Japanese government bonds to about 2 trillion yen per month in the next one to two years.
Nomura Securities believes that regardless of the scale and speed of the reduction, the key is to provide transparency to ensure that the reduction in the BOJ's bond purchases does not produce unexpected upward pressure on yen rates.
Editor / jayden