ECB, BoJ and Riksbank to take centre stage this week – BBH

Sweden's Riksbank, the European Central Bank, and the Bank of Japan hold policy meetings in the week ahead and will be key events for the week ahead, according to analysts at BBH.  

Key Quotes

“None are expected to change policy.  However, there are nuances that could make a difference.  The Riksbank may not change its projected policy path, but it may lift its inflation forecast.  Note that the trade-weighted krona has fallen by nearly 6% over the past three months and is at its lowest level since 2009.”

“The Bank of Japan is committed to its current course, characterized by Qualitative and Quantitative Easing and Yield Curve Control.  The significance of this meeting is that it will offer forecasts for FY20 for the first time.  Currently, it projects (core) inflation to be 1.8% in FY19.  The challenge is that in October 2019, the sales tax will be raised to 10% from 8%.  The past two hikes have weakened the economy.  An inflation forecast near 2% for FY20, excluding the effects of the tax increase, though seemingly optimistic, may support the yen, as it would be consistent with a move toward exiting the extraordinary monetary policy.”

“At the start of the year, many market participants had been expecting a substantive evolution of the ECB's statement and forward guidance to prepare investors for the end of the asset purchases.  However, the economic data has disappointed, and inflation pressure eased.  Consider that CPI averaged 1.5% in 2017, but 1.4% in Q4 17 and 1.3% in Q1 18.”

“To be sure, we continue to expect the ECB to finish its asset purchases this year, but there is no great hurry to signal anything after September when the current purchase plan ends.  We expect the ECB to eventually signal that it will taper further in Q4 18.  However, such an indication may not come for a few more months.”