Shoki Omori is a dedicated and skilled Bank of Japan watcher both as the Chief Global Desk Strategist at Mizuho Securities and as a graduate of Columbia University. He has been betting Governor Kazuo Ueda would lead the BOJ to go ahead with a rate hike this week after it took a cautious pause and declined to do one in December, and he continues to bet on this now.
He notes that the big question going into to this past week had been what new policies a newly-inaugurated President Trump might spring on the markets especially when it comes to tariffs. He stresses that when Trump declined to spring any big negative surprises on the markets, investor breathed a sigh of relief and are ready for the BOJ to hikes its key rate by 0.25% to 0.50% .
Importantly Shoki expects a cautious message from the BOJ where it says it will be data dependent which will give them a freer hand in future policy decisions. He is also waiting to what the BOJ’s quarterly Economic Outlook, another key to its messaging, has to say about the sustainability of 2% inflation as some economists see signs the trend in inflation is losing steam.
So dive in and see, hear what he has to say. You will be better prepared to sit back and see, hear and understand what the BOJ does now and what it may be lining up to do next.
Shoki Omori
Trump tariffs are not so focused on Japan… 00:01:39:18 - 00:02:17:18
I think initially when <Trump> didn't mention anything about the tariffs, markets were pretty easy, feeling easy about what he is going to do in the first week or so. But suddenly, I think when he talked about Canada and Mexico, that turned around. And now what markets are thinking about is what Trump is going to impose on China and other Asian countries. So Japan as well. And I think we should be really careful about what Trump is going to say going ahead. But…he seems that is so far, as in the in the run up to the actual election, it hasn't been like Trump has mentioned Japan a lot.
Whatever’s next, the yen is already causing inflation…00:03:27:13 - 00:03:56:21
…People have <talked about> an exchange rate move that could force the BOJ's hand. But that doesn't seem to be a factor right now. <The Yen is> around 155 against the dollar. And it does look cheap, of course, compared to, say, last year or two years ago. And people still say that cheap, cheaper yen is causing import inflation and that's causing harm on households because CPI growth is still high in terms of the headline.
‘Dovish rate hike’ on the way… 00:05:16:01 - 00:05:46:16
And I do feel that <the BOJ> is going to emphasize that it's going to be a dovish hike because obviously if you go back to the December impact, <the Governor> sounded dovish. And if he tilts to that hawkish side in a month, that's going to confuse the market and that is going to make markets price in more hikes than what the U.S. wants in the shorter term.
BOJ is watching, cautious, and data-dependent 00:07:10:21 - 00:07:43:08
…<The BOJ> skipped the December hike… because they wanted to see what Trump said. So I do kind of feel that the view is going to be cautious. I mean, they are already cautious on overseas economy and politics, geopolitics. So I think that's going to continue. And also, they have been cautious on the demand side of the economy, especially consumption. So that's going to be the key, which means that they're going to be data dependent.
Data dependency looks neutral- gives flexibility 00:07:43:10 - 00:08:13:18
And if they say <they are> going to be data dependent, it kind of sounds neutral. So, they have a free hand in terms of monetary policy… they could just but just ,move. when they need to. I think that that's going to be the guidance for this meeting. In terms of inflation, are they going to put how they will portray that inflation? Will they say, oh, no, it's around 2%, depending on which number you look at?
Policy decision will be less about the rate than about momentum 00:08:39:13 - 00:09:09:21
There are various measures <of inflation>. They're supposed to be over 2% rate <to justify> hike rates. How does that look? It's mixed because if you see the numbers that people see or the public sees, it's above 2%. But if you see the positive trend measures, they are trending down, <there is> deceleration. That's the key, I think the momentum… is losing steam.
Greater certainty should come with time 00:09:09:23 - 00:09:46:11
… I do kind of feel that the BOJ is worried about the steam going away. And that's why I think the BOJ is going to be a little bit cautious this time around. But at the same time, if they see central result, it's going to come out as early as February. They could really gain confidence <on the path of> wages and consumption.
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