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BoJ Stays Pat, Signals Potential Policy Shift in Near Term

As anticipated, the Bank of Japan (BoJ) maintained its negative interest rate policy (NIRP) during its January meeting. Governor Ueda expressed a growing confidence in inflation trending sustainably towards the 2% target, indicating that terminating NIRP would be appropriate eventually.

However, the precise timing for this shift remains uncertain, though there's now a significant likelihood for a change in March or April. The BoJ is determined to ensure the inflation target is firmly met, mindful of its previous unsuccessful attempts to normalize policy. Consequently, even after the conclusion of NIRP, the monetary policy will remain exceptionally accommodative.

Furthermore, the BoJ revised its inflation projections for 2024 and 2025. The forecast for 2024 was adjusted downward to 2.4% from 2.8%, and the outlook for 2025 was marginally increased by 0.1% to 2.5%.

Our Take: While the decision was expected, the duration of the BoJ's commitment to NIRP raises questions. This excessively prudent strategy carries various side effects, and the longer the BoJ delays, the greater the risk of another setback. Nonetheless, our outlook on the Japanese Yen remains optimistic, particularly favoring a lower CHFJPY.


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