Something for your Espresso: The most hawkish BoJ in decades?
The Bank of Japan opens the door for >1% 10yr bond yields alongside a large revision of inflation forecasts and yet the JPY weakens again - exactly as we anticipated. Meanwhile, the US Treasury issuance bazooka was nowhere to be seen, or was it?
Morning from Europe
The ambiguous BoJ strikes again. It is very unclear what the new flexibility in the YCC program actually means, other than 1% not being a crystal-clear line in the sand any more.
A few highlights from the BoJ communication:
1) 10yr YCC cap is no longer strictly 1% and the BoJ adds flexibility by “nimbly” conducting market operations around 1% instead of at a fixed rate operation
2) The inflation forecast was increased to 2.8% in BOTH 2023 and 2024 for CPI ex fresh food (yes, you heard them right). That is an increase of 0.9%-points in 2024!
For the CPI ex fresh food and energy, the forecasts are 3.8% and 1.9% for 2023 and 2024.
Chart 1: The new forecasts from the BoJ
The Bank of Japan opens the door for >1% 10yr bond yields alongside a large revision of inflation forecasts and yet the JPY weakens again - exactly as we anticipated. Meanwhile, the US Treasury issuance bazooka was nowhere to be seen, or was it?
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