No big surprises expected from the BOJ at next week's meeting - Barclays

BOJ's Policy Direction

Barclays anticipates that the Bank of Japan (BOJ) will keep its policy rate unchanged at 0.75% during the upcoming monetary policy meeting. They also expect no major changes to its existing forward guidance. Furthermore, given the low levels of real interest rates, there is an expectation for rate hikes contingent on improvements in economic activity and prices.

Impact of Yen Depreciation

The ongoing depreciation of the yen is likely to be a significant factor in the BOJ's decision process. Both the government and the BOJ are cautious regarding yen weakening, but the BOJ seeks to avoid rate hikes that seem mainly motivated by FX concerns. Hence, a forced rate increase to counteract yen depreciation would not be well-received if the underlying fundamentals remain adverse.

Future Outlook

Barclays holds a positive outlook regarding growth and inflation, setting the stage for the potential flexibility in rate hikes moving forward. Ahead of the spring wage negotiations, the BOJ may demonstrate a bullish outlook, raising the need for action against yen depreciation. While the expectation is that no clear rate changes will occur in the next meeting, their policy flexibility will be crucial to watch moving forward.