Market bets on an April rate hike increased sharply following today’s decision, but for now we maintain our long-held view that the first rate hike will materialize in June. Of course, this could change depending on upcoming inflation trends and growth conditions.
There was no change in forward guidance from today’s statement, and we do not believe the BoJ will make any policy changes at its next meeting in March. We also don’t expect him to make any noise by making a surprise policy change at the end of the fiscal year. Governor Ueda has stated that more information will be available before the April meeting than in March, so we are inclined to think that the latter is probably not on the table.
There are several areas to follow to assess the precise timing of the BoJ’s policy change, but inflation should be considered the most important of all. In our view, the inflation path through April will be quite bumpy, exacerbated by government energy subsidy programs. Consumer inflation has slowed over the past two months as the government renewed some of last November’s subsidy programs, combined with weakening oil prices. We expect inflation to fall further in January (compared to 2.2% in December), but to rise quite strongly again in February.
The April CPI is a key data for judging the inflation trend, but when the April meeting is held, the national CPI report will not be available yet. April is also in the middle of Shunto salary negotiation season. While Governor Ueda mentioned that there is no need to wait to collect all the small business data, we believe that the BoJ will wait a couple more months to see if wage growth could actually lead to sustaining inflationary pressure, particularly in the service sector. prices. The Bank of Japan will take orderly measures, including reviewing future guidance before taking any action. We believe this review will likely occur in April. Taking these factors into account, we still expect the Bank of Japan to announce its first rate hike in June for now.