3 scenarios quantified for the Bank of Japan policy decision due today

Société Générale have placed probabilities on 3 scenarios they outline from the Bank of Japan statement due Wednesday 18 January 2023.

SG say their "main scenario", at a 50% probability is for the BOJ to make no change to the Yield Curve Control (YCC) policy at this meeting.

However, this risk of some change has "risen quickly". SG, like us all, eyeing rising Japanese CPI and the sustained selling of JGBs that are forcing yields to rise and the BOJ to intervene to hold YCC targets in place. Only yesterday the BOJ bought JGBS yet again:

• Bank of Japan bids to buy 5-10yr to maturity JGBs, unlimited amount

Anyway, back to SG:

• see a 25% chance of the Bank of Japan "scrapping JGB purchase limitation and increasing the types of bonds"
• See a 25% chance of a wider band of ±75 bps for the 10-year yield

SG note on Japanese inflation data making the BOJ's "Job harder":

• core CPI likely accelerated again in December to 4%, owing to broad-based inflationary pressure

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Last week we saw accelerating Tokyo area inflation in December:

• Japan data - December Tokyo area CPI, core core is +2.7% y/y
• Tokyo inflation all the more reason for BOJ to look towards policy shift

Later this week we get the nationwide inflation readings for December.

• Due Friday 20 January, 8.30am local time in Japan
• Due at 2330 GMT (this is 1830 US ET) on Thursday 19 January.