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Researchers at UOB Group assessed the recent BoJ monetary policy meeting.

Key Quotes

“There was one additional new sentence at the end of the July MPM statement that “the Bank will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost.” Kuroda explained that the new addition was to clarify its policy stance amid heightening downside risks and not that BOJ is “considering” easing, and that he cannot say that prices are losing momentum at the moment”.

“BOJ’s projected GDP growth rate in fiscal 2019 & 2021 was again slightly revised lower while growth in fiscal 2020 stayed unchanged. Growth for fiscal 2021 is now lower to 1.1% (from 1.2%), still the highest in three years”.

“The BOJ CPI inflation point estimates and the forecast ranges was mostly adjusted slightly lower across the forecast period. The effects of the consumption tax hike are still assumed to be “flushed out” by fiscal 2021 with CPI inflation projected at 1.6% in fiscal 2021, unchanged from Apr 2019 Outlook and still well below the 2% target”.

“We believe that as long as the government stays on course to implement the next sales tax hike in Oct (which can be taken as a sign the government is keeping its pledge to fiscal discipline and restore fiscal balance at some point), that may be sufficient to convince the BOJ to use this as an opportunity to reassert its easy monetary policy position without changing the policy targets, i.e. “allow” the Finance Ministry to issue more debt (JGBs) which the BOJ in turn will buy so as to push its JGB buying closer to the JPY80trn annual pace. This may happen in Sep MPM”.