Asia Week Ahead: Bank of Japan likely to retain yield curve control

The Bank of Japan is expected to maintain its YCC policy and negative short-term rate policy at its January meeting. Inflation will likely slow further in January and the cautionary mood following the recent earthquake will prevail.

Meanwhile, Tokyo CPI inflation is expected to decelerate to 2.2% year-on-year in January with government subsidies on energy bills and a high base last year contributing as well.

December exports should gain 6.0% YoY on the back of a recovery in IT machinery and motor vehicle exports. We believe the recent earthquake hasn’t interrupted production much while the service sector-led recovery continues, with the flash PMIs confirming the trend.

Tighter credit terms and news of a major construction company’s debt restructuring will hamper business and consumer sentiment in December. For 4Q GDP, stronger-than-expected exports will be the main engine of growth, yet partially offset by the contraction of construction investment and private consumption. Thus, we expect 4Q GDP to decelerate to 0.4% quarter-on-quarter (seasonally adjusted) from the previous quarter’s 0.6% growth.

Price pressures in Singapore likely persisted at the end of 2023 with December headline inflation likely settling at 3.6% YoY. CPI unexpectedly dipped in November and we could see prices up 0.2% on a month-on-month basis.

Core inflation, which is the central bank's preferred inflation gauge, should remain at 3.2% YoY, suggesting that the Monetary Authority of Singapore will likely maintain its current policy settings at its first meeting of the year.

December trade figures will likely show imports rising modestly while we could see a surprise bounce in exports. Imports are tipped to gain by almost 4% YoY due to robust inbound consumer goods imports linked to strong domestic demand.

Meanwhile, exports could benefit from a favourable base and outbound shipments of non-electronic items. The overall trade balance, however, will likely remain in deep deficit with the shortfall likely hitting $4.4bn. This development suggests that the current account remains in deficit, pointing to sustained pressure on the Philippine peso.