Bank of Japan (BoJ) will not change tack at its next monetary policy meeting on 19-20 June, and crucial decisions on future direction will not be taken before the G20 meeting in Osaka on 28-29 June, where US President Donald Trump’s stance on global trade tussles is expected to be revealed, according to a leading city strategist.
In a note to clients, Katsunori Kitakura, lead strategist at Sumitomo Mitsui Trust Asset Management (SMTAM), says although the US-China trade dispute has strengthened the yen and stocks have fallen, this will not be enough to force additional easing by the BoJ.
“The Japanese central bank has limited room for manoeuvre. It will maintain its current accommodative monetary policy and keep rates very low until at least the spring of 2020 by changing the forward guidance rate, a key policy rate.”
Kitakura noted the main topics of discussion at the June meeting will be on the global economic slowdown and the risk that it poses to the Japanese domestic economy.
The BoJ, like most central banks, is troubled by the US-China trade war and where it will lead to. The focus will be on the aftermath of the G20 meeting in Osaka (28-29 June) because President Trump - ‘Tariff Man’ - has stated that he will make a final decision on additional tariffs on Chinese products after the meeting.”
At this point the US Federal Reserve may carry out a rate cut which could impact the yen and Japanese exports.
The next Federal Open Market Committee (FOMC) meeting will coincide with the BoJ monetary policy meeting on 19-20 June.
“However, it will likely not announce accommodative measures then. The US central bank may suggest stopping scaling back its vast portfolio of bonds (i.e. shrinking the balance sheet as result of QE) or may move the date forward. It may also hint at the possibility of a rate cut post July. The Fed’s stance should become clearer after the G20 but uncertainty will persist until the trade dispute is resolved. Only then will the BoJ be likely to follow suit and look at revising its policy,” Kitakura concluded.
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