At next week’s meeting, the BoJ is expected to take a breather, but we need to watch how the BoJ interprets the recent price dynamics and its risk assessment for the US economy. We continue to put the probability of a December hike at just over 50%, given Japan's inflation situation and the recent JPY depreciation. However, this will also depend to a large extent on the outcome of the US elections and global financial market developments.
The BoJ was criticised for a lack of communication when it raised its key rate in July, so it will try to improve its communication via its outlook report and its assessment of the economy. For the economic outlook report, the GDP outlook for FY24 is likely to be revised down quite significantly, reflecting the recent slump in production related to the auto sector and natural disasters, but GDP for the coming years is likely to remain little changed. As for inflation, the BoJ may revise up the FY24 outlook, but no significant change is expected. The timing of the next rate hike is highly uncertain for now, but the Bank of Japan is expected to raise its policy rate to 1.0% by the end of next year. - ING
Comments