Preview of the April Japan Bank Financial Policy Decision Conference
2024-04-26
■ Focus: (1) price expectations in the outlook report, (2) whether the purchase amount of treasury bond is revised
■ It is expected that even if both (1) and (2) are correct, there will still be a slight fluctuation, and it is essential to note that the Japanese yen exchange rate may fluctuate in the short term
The Japan Bank Financial Policy Decision Conference (hereinafter referred to as the Policy Conference) held from April 25th to 26th is the first meeting after lifting the hostile interest rate policy. The market generally expects policy interest rates to remain unchanged, and market expectations are consistent. This meeting will release the "Economic and Price Situation Outlook Report," so we should pay attention to whether its content will lead to an increase in the yield of Japanese treasury bond bonds. Considering that the Japanese treasury bond yield significantly impacts the foreign exchange market (yen exchange rate), we should pay special attention to this point. In addition to the press conference by the President of the Bank of Japan, we believe that the specific focus is (1) the growth rate of the consumer price index (CPI) predicted in the outlook report and (2) whether the purchase amount of treasury bonds is revised.
(1) If the expected median of core CPI for 2026 (first released) in the outlook report, excluding fresh food and energy, both show a year-on-year growth of 2%, it may be interpreted as a sign of interest rate hikes. This is because on April 19th, the President of the Bank of Japan, Shibata, stated: "If the fundamental inflation rate continues to rise, the possibility of interest rate hikes is very high." "If the depreciation of the yen leads to an increase in import prices, which has an undeniable impact on the fundamental inflation rate, then a change in monetary policy is also possible." The market has already expected that the expectation for 2025 will be raised to "2% year-on-year growth per unit.". According to January's forecast, the expectations for 2025 are 1.8% and 1.9%, respectively.
(2) If the decrease in the monthly purchase of treasury bond bonds is clearly announced in the statement, it may be interpreted as the Bank of Japan's attempt to curb the yen depreciation. Since December last year, the Bank of Japan has maintained a monthly purchase amount of approximately 6 trillion yen (5.9289 trillion yen in March). According to the "Long Term Treasury Bond Purchase Plan (April June 2024)" released by the Bank of Japan on March 19, the minimum monthly purchase amount of interest treasury bond is 4.75 trillion yen, and the maximum is 6.95 trillion yen. This range is currently considered within the discretion of the Bank of Japan and the Financial Markets Authority.
The author does not anticipate significant revisions to (1) and (2). Therefore, during the press conference of the President of Shibata Bank of Japan, we need to pay attention to the possibility of short-term fluctuations in the Japanese yen exchange rate. (1) It is because according to the Bank of Japan's supplementary indicator for March's "tone inflation rate" released on April 23, the "trimmed average," "weighted average," and "mode" all show a slowing trend. (2) It is because the time since the lifting of the hostile interest rate policy has been relatively short, and there are still unstable factors, such as tension in the Middle East in the market. The market's view that Japanese banks will maintain a loose monetary environment may not change.
■ It is expected that even if both (1) and (2) are correct, there will still be a slight fluctuation, and it is essential to note that the Japanese yen exchange rate may fluctuate in the short term
The Japan Bank Financial Policy Decision Conference (hereinafter referred to as the Policy Conference) held from April 25th to 26th is the first meeting after lifting the hostile interest rate policy. The market generally expects policy interest rates to remain unchanged, and market expectations are consistent. This meeting will release the "Economic and Price Situation Outlook Report," so we should pay attention to whether its content will lead to an increase in the yield of Japanese treasury bond bonds. Considering that the Japanese treasury bond yield significantly impacts the foreign exchange market (yen exchange rate), we should pay special attention to this point. In addition to the press conference by the President of the Bank of Japan, we believe that the specific focus is (1) the growth rate of the consumer price index (CPI) predicted in the outlook report and (2) whether the purchase amount of treasury bonds is revised.
(1) If the expected median of core CPI for 2026 (first released) in the outlook report, excluding fresh food and energy, both show a year-on-year growth of 2%, it may be interpreted as a sign of interest rate hikes. This is because on April 19th, the President of the Bank of Japan, Shibata, stated: "If the fundamental inflation rate continues to rise, the possibility of interest rate hikes is very high." "If the depreciation of the yen leads to an increase in import prices, which has an undeniable impact on the fundamental inflation rate, then a change in monetary policy is also possible." The market has already expected that the expectation for 2025 will be raised to "2% year-on-year growth per unit.". According to January's forecast, the expectations for 2025 are 1.8% and 1.9%, respectively.
(2) If the decrease in the monthly purchase of treasury bond bonds is clearly announced in the statement, it may be interpreted as the Bank of Japan's attempt to curb the yen depreciation. Since December last year, the Bank of Japan has maintained a monthly purchase amount of approximately 6 trillion yen (5.9289 trillion yen in March). According to the "Long Term Treasury Bond Purchase Plan (April June 2024)" released by the Bank of Japan on March 19, the minimum monthly purchase amount of interest treasury bond is 4.75 trillion yen, and the maximum is 6.95 trillion yen. This range is currently considered within the discretion of the Bank of Japan and the Financial Markets Authority.
The author does not anticipate significant revisions to (1) and (2). Therefore, during the press conference of the President of Shibata Bank of Japan, we need to pay attention to the possibility of short-term fluctuations in the Japanese yen exchange rate. (1) It is because according to the Bank of Japan's supplementary indicator for March's "tone inflation rate" released on April 23, the "trimmed average," "weighted average," and "mode" all show a slowing trend. (2) It is because the time since the lifting of the hostile interest rate policy has been relatively short, and there are still unstable factors, such as tension in the Middle East in the market. The market's view that Japanese banks will maintain a loose monetary environment may not change.