FLJP - Bank Of Japan Surprises With 15bp Hike But Bond Purchase Slowdown Only Gradual

2024-07-31 09:00:00 ET

Summary

• As we had expected, the BoJ raised its policy rate to 0.25% and announced the JGB purchases would be halved by 1Q26.
• The growth outlook was trimmed modestly for FY24, while the inflation outlook remained above 2% until FY25.
• As we expect real wage growth to turn positive and growth conditions to improve, we maintain our call for a 25bp hike as early as 4Q24.

By Min Joo Kang & Francesco Pesole

BoJ accelerates policy normalisation

We believe that recent data has been good enough to give the Bank of Japan confidence that the economy is in a virtuous cycle of wage growth, consumption, and inflation, despite growing concerns about weak growth. Earlier today, industrial production contracted by 3.6% month-on-month (seasonally adjusted) in June mainly due to weak car production, adding to the concern over weak growth. But the BoJ has likely decided to focus on the recovery in inflation and consumption. The weakness in the yen could be another major factor for the hike. Although the yen has changed direction recently, the BoJ seems to be increasingly concerned that excessive JPY weakness could have a negative impact on the economy. These concerns were well noted in the BoJ decision statement. It said that the economy and prices are developing generally in line with the BoJ’s outlook and that import prices have turned positive recently with upside risks....

For further details see: