BOJ Analysis

The YCC bands were not expected to change as the July Inflation forecasts were factored to 2.5% and 1.7% for 2024. Inflation forecasts were revised higher for 2023 to CPI minus food at +2.7 to +3.0 and CPI minus food and Oil at +3.5 to +3.9.

Most revealing was 2024 Inflation minus food at +2.7 to +3.1 and Inflation minus food and Oil at +1.6 to +2.1.

The concept to CPI minus food is a 2012 addition while CPI minus Food and Oil was inserted in 2017 along with the economic changes.

CPI and GDP is offered as a median forecast to exclude most high and most low then average the remaining values. Current predictions should reveal extremely close numbers to future releases.

Compare CPI to Real GDP projections.

GDP 2023 = +1.8 to +2.0 and 2024 = +0.9 to +1.4.

The 3rd YCC expansion since 2016 is the result of 3% Inflation in relation to the current upper 1.5 band. With Inflation forecast far above the current line, the BOJ raised YCC yet again.

Higher Inflation to quote the October Summary is the result of remaining effects of a pass-through to consumer prices of cost increases led by the past rise in import prices and the effects of the recent rise in crude oil prices.

Viewed from a trade perspective. If an imported item or commodity increased in price from the actual purchase price, consumers pay the higher cost. Increased Import prices adds to higher Inflation.

To balance the Export side from the October Summary. In the corporate sector, exports and production are projected to be more or less flat for the time being, affected by the slowdown in the pace of recovery in overseas economies.

The main BOJ focus to Japan’s economics and prosperity is Imports, Exports and level of USD/JPY. Speculation to the 2015/ 2016 revamp to Economics was based solely on Imports, Exports and USD/JPY levels.

The constant focus in every BOJ statement to overseas economies refers to Japan’s ability to Export profitably by holding down imports in relation to the proper level of USD/JPY. GDP and Inflation become important yet secondary to Imports and exports.

By export expansion automatically allows GDP to grow and Inflation to remain low. Overseas economies however must not fall into Recession, depression or crash otherwise Japan falls into economic trouble.

From October’s Summary. growth rate thus far has been higher than was previously projected, mainly due to a decline in imports.

View the above statement opposite. Exports higher and the result of higher GDP. The threat to Japan’s GDP is the Output Gap sits at 0 and growth remains a 50 / 50 proposition.

For the current time period, most vital is this statement. Japan ‘s financial system has maintained stability on the whole.

Most interesting to October’s Summary : Private consumption is also projected to be underpinned by the government’s measures, such as those to reduce the household burden of higher gasoline prices, electricity charges, and gas charges.

The BOJ referred to the Japanese Government’s love to impose higher tax rates on consumers in Gasoline and Electricity. Confiscatory Consumption taxes for Japan has been a mainstay for decades.

Japan faces severe economic challenges ahead yet those challenges fails to include interest rate changes as the new expansion of the YCC Bands incorporates interest rates. Moving YCC bands is the interest rate change.

As the BOJ states, risks are skewed to the downside.


From current trade figures, no intervention is required however trade numbers will become a lazer beam focus for the next month. Typically, the BOJ allows trade figures to aggravate for a very short period of time before actual intervention.
Based on Inflation and GDP projections, trade figures contain ability to easily travel off kilter.
Overall, the BOJ says short USD/JPY.

Yen Index

Below = USD/JPY Turnover 2023 Swaps Vs USD/JPY. Orange = Swaps. Blue = USD/JPY

Brian Twomey

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