The sharp weakening of the yen since the US election has provided some much needed good news for the BoJ by giving Abenomics’ policies a second wind which will help to lift inflation and growth and Japan. It has also eased pressure on the BoJ to deliver further monetary easing when it was beginning to face policy constraints. The BoJ can continue to concentrate on switching their policy focus towards yield curve control.
There is no need for the BoJ to announce further policy steps this week. We would expect Governor Kuroda to reiterate that it remains committed to keeping the 10YR JGB yield at around 0%. If the comments help to dampen some speculation that the BoJ is considering raising the yield target, they could weigh modestly on the yen.
The BoJ is also expected to upgrade their economic assessment. It received further encouraging news overnight as it was revealed that Japan’s trade surplus continued to widen. The seasonally adjusted trade surplus in November reached it widest level since July 2010. There was a sizeable jump in real exports in November which reached their highest level since prior to the global financial crisis. The latest Tankan survey also provided some encouragement for the BoJ revealing that businesses’ raised their outlook for inflation in Q4. The average all-industry general price outlook for the one year ahead and five years ahead both increased modestly by 0.1 percentage point to 0.7% and 1.1% respectively. It marked a reversal from the down trend which has been in place since Q1 2015.
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