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

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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 -

https://asia.citi.com/wealthinsights/citifx-house-views-and-strategy

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Citigroup, its affiliates and any of the officers, directors, employees, representatives or agents shall not be held liable for any direct, indirect, incidental, special, or consequential damages, including loss of profits, arising out of the use of information contained herein, including through errors whether caused by negligence or otherwise.

CCIFL is not currently a member and does not intend to become a member of the Canadian Investment Regulatory Organization (“CIRO”); consequently, clients of CCIFL will not have available to them investor protection benefits that would otherwise derive from membership of CCIFL in the CIRO, including coverage under any investor protection plan for clients of members of the CIRO.

Bahrain: IN BAHRAIN, CITI PRIVATE BANK OPERATES UNDER SPECIFIC APPROVAL ISSUED ON THE BASIS OF CITIBANK, N.A., BAHRAIN BRANCH’S BANKING LICENSE

Marketing and distribution of Investment Funds to clients in Bahrain requires Notification to the Central Bank of Bahrain and will be limited to UHNWI as defined below. Minimum investment subscription criteria will apply for products for all subscriptions for Bahrain domiciled clients.

Ultra-high net worth investors are:

(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 25 million or more

(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 25 million; or

(c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).

GLOBAL CONSUMER BANK (Asia Pacific and EMEA):

“Citi analysts” refer to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”), Citi Global Wealth Investments (“CGWI”) and voting members of the Citi Global Investment Committee. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document.

The information in this document has been obtained from reports issued by CGMI and CGWI. Such information is based on sources CGMI and CGWI believe to be reliable. CGMI and CGWI, however, do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI and CGWI's judgment as of the date of the report and are subject to change without notice. This document is for general information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this document may be reproduced in any manner without the written consent of Citibank N.A. Information in this document has been prepared without taking account of the objectives, financial situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment. Investments are not deposits, are not obligations of, or guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance, prices can go up or down. Investment products are not available to US persons. Investors should be aware that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If an investor changes residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Citibank does not provide legal and/or tax advice and is not responsible for advising an investor on the laws pertaining to his/her transaction.

Citi Research (CR) is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

For more information, please refer to https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures.

MARKET SPECIFIC DISCLOSURES

Hong Kong: This This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs, and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors, as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

CSL does not provide discretionary portfolio management services

UAE: This document is distributed in UAE by Citibank, N.A. UAE. Citibank N.A. UAE is licensed by UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity as Promoter under license number 602003.

Citibank N.A. UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch.

This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives. At any time, Citigroup companies may compensate affiliates and their representatives for providing products and services to clients.

United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

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