July MPM Preview: Focus on Gov. Ueda’s Press Conference and the Outlook Report

Research evidence excerpt

July MPM Preview: Focus on Gov. Ueda’s Press Conference and the Outlook Report

IdeaM

July MPM Preview: Focus on Gov. Ueda’s Press Conference

and the Outlook Report

Takeshi Yamaguchi, Masayuki Inui

Policy rate to remain on hold at 1.0%

We expect the BoJ to keep the policy rate unchanged at 1.0% at its July 30-31

Monetary Policy Meeting ( Exhibit 1 ). With the June hike still fresh, a July hold is broadly

priced in. The focus will be on signals regarding the timing of the next rate hike. In

particular, market participants will be closely watching both the Outlook Report and

Governor Ueda’s press conference, as he was absent from the previous meeting due to

hospitalization.

Exhibit 1: Policy Rate to Be Kept at 1.0% in July: Policy Rate Developments Since the

1990s

7.0

6.0

5.0

4.0

% 3.0

2.0

1.0

0.0

-1.0

Note: The official discount rate was the main policy tool until the mid-1990s, after which the BoJ shifted to targeting short-term market rates,

with the overnight call rate becoming the explicit policy target from 1998.Source: Bloomberg, Morgan Stanley Research

The BoJ appears to be gaining confidence in the resilience of both domestic and

external demand, while continuing to see a risk that underlying inflation could

overshoot 2%.

On the external side, strong global AI and semiconductor demand is not only boosting real

exports of related goods, but is also supporting export prices, thereby helping to offset

the negative impact of the deterioration in the terms of trade stemming from higher oil

prices. Around the time of the April Outlook Report, the BoJ appeared concerned that

weaker corporate profits caused by deteriorating terms of trade could weigh on future

wage growth, including next year's spring wage negotiations. While much will depend on