What if "it" Works?
Japan into this weeks BoJ Meeting
Something that is really interesting to me is that since the June Bank of Japan meeting, Japan has fallen out of the main market narratives. This is despite pretty massive news that has happened in the interim. Of course, the tragedy with the assassination of Shinzo Abe, but also the Upper House elections, quarterly Tankan survey and two new BoJ board members.
I did a blog post following the June BoJ meeting and my takeaway was, the BoJ tripled down, and at the same time, they are also getting closer to a shift.
Cheap Convexity from June 22nd:
“The theme of this post is a bit messy as it is a combination of two contradictory thoughts. On the one hand, Kuroda has not flinched and the gap between the market assumed pain point and his actual pain point has continued to be quite a chasm. This is the opportunistic reflation the BoJ has been looking for and they are embracing it. However, at the same time, things are now starting to “work” and there is no free ride on JPY weakness anymore politically for the BoJ.
So where are we now with the BoJ? I think the catalysts to watch are what the BoJ calls “Bank View” meetings in which we get new inflation forecasts as catalysts for action and the July meeting is next. At the July meeting the BoJ will have updated inflation forecasts from their April meeting and a new Tankan quarterly survey on business inflation expectations. We will also have the results from the Upper House elections on the 10th. This may not be the catalyst to actually re-adjust the YCC band but it may be the catalyst to start to see a shift at least in their easing bias. So while June saw Kuroda double down on his easing bias, the tone at July BoJ on the 21st could sound a bit different.”
The theme of my post last month was that there are three things to watch:
The Upper House elections.
New Quarterly Tankan survey.
The July BoJ “Bank View” updated forecasts.
We have had two of those things so far, and the takeaway from both has been max “reflationary.” Now we await the third, which sets up this weeks BoJ meeting as very interesting.