Key Takeaways

  • The BoJ voted unanimously to maintain all of its

    monetary policy settings unchanged, including yield

    curve control (YCC).

  • The assessment of the economy and related risks

    were also left unchanged from April, when the last

    quarterly Outlook Report was released.

  • On inflation, the BoJ continues to expect CPI excluding

    fresh food to decelerate toward the middle of fiscal

    year 2023. During the press conference Governor

    Ueda continued to express uncertainties over the

    outlook for wage and price pressures.

  • Recent wage data were weaker than expected. It will

    take another few months to confirm how much of the

    3.7% wage rise resulting from the Shunto negotiations

    will filter into actual core earnings.

  • Ueda has repeatedly stressed that next year’s Shunto

    negotiations will confirm whether wage and inflation

    pressures are sustainable.

  • The window of opportunity to adjust YCC may be quite

    narrow. Waiting until the September or October

    meetings may provide greater clarity over the passthrough

    of Shunto negotiations. However, spillovers

    from the US recession at the turn of the year will

    challenge the macro rationale for a policy shift.

  • The fate of YCC is therefore finely balanced. We

    expect the most likely change will be a widening of the

    tolerance band around the 10-year JGB trading range

    to +/-75bps, perhaps at the July meeting. But the

    opportunity to make changes could yet be missed.


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