The outcome of the Bank of Japan meeting will be quite interesting. Market consensus suggests that the current policy setup is unlikely to change, but we see a slightly higher likelihood of another YCC adjustment with changes to forward guidance.
The market will also pay more attention to the BoJ’s quarterly growth and inflation outlook. If the central bank revises upward its fiscal 2024 inflation forecasts to above 2%, the market is likely to take this as an indication that policy normalization is fast approaching.
The services-led recovery should continue, but at a slower pace, as weak exports and disruptions at auto factories hamper industrial production. Meanwhile, labor market conditions will likely remain difficult, according to the results of several surveys.