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BoJ to revise up its FY2022 inflation forecast but having no policy implication

BoJ to revise up its FY2022 inflation forecast but having no policy implication


  • JPY: Several media outlets last Friday report that the BoJ is likely to revise its FY2022 core CPI inflation forecast for Japan upward from 1.1% YoY as of January to the high 1% range in the upcoming outlook report (due April 28). Citi analysts however expect this to be a mechanical revision stemming from the rise in global commodity prices since January. The team pencils in a 1.8% YoY increase for core CPI in FY2022, up sharply from a 1.3% YoY rise expected in January. This would be consistent with BoJ Governor Kuroda’s recent assertion that inflation is likely rise to c2% and be largely driven by a surge in global commodity prices. However, Governor Kuroda has also indicated that “monetary tightening is not necessary nor appropriate” in light of the inflation upgrade and hence Citi analysts do not think the expected inflation forecast revision will have any significant policy implications. Instead, the larger focus in the April outlook report will likely be on inflation forecasts for FY2023 and FY2024 (the latter revealed for the first time).
  • JPY: The BoJ expects a 1.1% YoY increase in FY2023 as of January and will announce the FY2024 forecast for the first time and if Japan’s inflation is expected to remain well below the 2% goal in these fiscal years, it may actually reinforce expectations for the policy status quo during Governor Kuroda’s tenure. It is only after the BoJ leadership change expected in April 2023, that Citi analysts expect the Bank to modify policy (an exit from NIRP – negative interest rate policy and shortening YCC – yield curve control targets) on the grounds that side effects/issues of current accommodation need to be addressed given that the framework of monetary easing has to be maintained until 2% inflation comes in sight.


China releases its Q1’2022 GDP and cuts RRR

  • CNY: China’s Q1’2022 GDP grows 4.8%, in line with Citi analysts’ above-consensus forecast (Citi/Mkt: 4.7%/4.2%YoY) and up from 4.0%YoY in 21Q4. ). Growth quickens from 2.5%YoY in Q4’2021 to 5.8%YoY in the manufacturing / secondary industry but slows from 4.6%YoY to 4.0%YoY in the services / tertiary industry amid Covid-19 lockdowns. The impact of Covid-19 lockdowns though appears asymmetrically substantial on demand and services but milder on production and construction. Citi analysts remain optimistic on China’s pro-growth policy actions and maintain their growth estimates at 4.7%, 5% and 5.7% for Q2-4’2022, leaving the full-year projection at 5.1% vs 5.0% a result of Q1’s better than expected outturn. On monetary policy, the PBoC may prioritize credit expansion over interest rate reduction with the PBoC’s announcement of a RRR cut from 8.4% to 8.1% on Friday, seen adding RMB530bn in liquidity. Citi analysts also expect a 10bp interest rate cut and a further 25bp RRR cut in May-December as the PBoC continues to focus more on growing the quantity of credit/TSF to restore credit demand.



Week Ahead

  • EUR: France’s second round of Presidential Election – the focus ahead of the second round will be the TV debate on 20 April. In 2017. Citi analysts’ base case is a narrow(er) victory for Macron on 24 April.
  • EUR: Euro Area: recession watch – Euro area consumer confidence and PMIs for April will be in focus this week. Euro Area: Consumer Confidence, April: Citi Forecast -20.0, Consensus -20, Previous -18.7; France: PMI Manufacturing, April: Citi Forecast 54.0, Consensus 53.0, Previous 54.7; France PMI Services, April: Citi Forecast 56.0, Consensus 56.5, Prior 57.4; German PMI Manufacturing, April: Citi Forecast 54.5, Consensus 54.5, Prior 56.9; German PMI Services, April: Citi Forecast 54.0, Consensus 55.5, Prior 56.1; Euro Area: PMI Manufacturing, April: Citi Forecast 54.5, Consensus 54.6, Previous 56.5 (still sustained by long supplier lead times); Euro area PMI Services, April: Citi Forecast 54.0, Consensus 55.0, Previous 55.6; Euro area PMI Composite Output, April: Citi Forecast 52.0, Consensus 53.9, Previous 54.9.
  • JPY: Debate over the USD/JPY trend has sparked interest in Japan’s external balances. Citi analysts conclude that Japan’s current account can probably stay in surplus in 2022, barring spikes from current levels in energy (oil, natural gas, and coal) prices. This is premised on energy commodity prices staying at current levels. The team calculates a deficit of c¥13trn for goods and services balance in 2022. This is on par with largest deficit in the current statistical series, which dates from 1996 (¥13.5trn, recorded in 2014). However, the income balance is sure to be larger than ¥13trn, making a current account deficit unlikely unless commodity prices spike further from current levels. That said, in data to be released this week, Japan’s March trade deficit is set to decrease modestly — the customs-clearance trade balance is likely to come to a ¥490.3bn deficit before seasonal adjustment and a ¥840.1bn deficit after it in March (-¥669.7bn and -¥1.0314trn, respectively in February).
  • GBP: UK: How challenged is the consumer? – UK GfK Consumer Confidence, April: Citi Forecast -34.0, Consensus 33.0, Previous -31.0 (UK households hit, signaling recession?); Retail Sales, March: Citi Forecast 0.0% MM, Consensus --0.1% MM, Previous -0.3% MM (fuel prices weighing); Ex Auto Fuels: Citi Forecast 0.2% MM, Consensus 0.0% MM, Previous -0.7% MM; UK PMI Manufacturing, April: Citi Forecast 55.0, Consensus 54.0, Previous 55.2 (output falling back); UK PMI Services, April: Citi Forecast 56.0, Consensus 60.0, Previous 62.6.
  • GBP: BoE: Bailey in focus – expect substantive comments from Governor Bailey this week as part of a week of macro events at PIIE. Last time out, Bailey struck a dovish tone warning on the risks to growth and Citi analysts expect a similar sentiment this week. 
  • NZD: NZ Q1 CPI: Citi forecast; 2.0%, Previous; 1.4% - Citi analysts forecast Q1 CPI data to produce the second largest quarterly increase, following the 2.2% gain in Q3 2021 and subsequent still high 1.4% gain in Q4 2021. On a quarterly forecast of 2.0%, yearly inflation would rise from a very high 5.9% to an even higher 7.2% which is close to the MPC’s expectation of 7% CPI inflation in H1’22 that was contained in the record of last week’s OCR meeting. 
  • CAD: Canada CPI NSA MoM (Mar) – Citi: 1.0%, median: 1.0%, prior: 1.0%, CPI YoY – Citi: 6.2%, median: 6.2%, prior: 5.7% - Citi analysts expect headline CPI to rise 1.0%MoM and climb to 6.2%YoY in March, which would be more or less consistent with ~6%YoY inflation in H1’2022 forecast by the BoC in the April MPR.


This is an extract from the Daily Currency Update, dated April 19, 2022. Please approach a Citigold Relationship manager if you would like more information. For the latest CitiFX house views and strategy, please click here -