Goldman Sachs not optimistic on BOJ, lowers USD/JPY forecasts

Analysts at Goldman Sachs lower their outlook for USD/JPY for the next 12 months in a latest report just ahead of the BOJ policy decision due Wednesday, noting that they are not optimistic on expectations for the upcoming policy meeting.

Key Quotes via eFX:

“This week's 'comprehensive assessment' from the BoJ could be one of two things.”

“On the one hand, it could be a fundamental reassessment of the policy stance, presumably with a view to adding stimulus. Given that the BoJ is missing its inflation forecast by a mile, this is certainly a reasonable expectation.”

“On the other hand, it could essentially be a PR exercise, selling the benefits of negative rates after the public backlash from the financial sector following the January IOER cut.“

“We outline our expectations for the upcoming policy meeting. We are not optimistic. Similar to the ECB, focus at the BoJ has shifted toward making the existing policy stance sustainable, as opposed to adding stimulus to meet the inflation target.” 

“A particular risk - not our base case - is that the BoJ could take steps to bear steepen the yield curve, to help the financial sector following the dramatic curve flattening since January.”

“We are lowering our $/JPY forecast to 108, 110 and 115 in 3-, 6- and 12-months (from 115, 120 and 125 previously). Our 3-month target of 108 reflects our view that the BoJ will continue to ease at upcoming meetings, likely via further IOER cuts.”