More of the same from the BoJ?

Weekly update
  • Weekly market update
  • 5 minute read

A good week for

  • Bonds rallied, led higher by Europe (+1% in local terms)
  • Sterling broadly appreciated against currency pairs, most notably rising +2.6% against the Japanese yen

A bad week for

  • Equities sold off in sterling terms, hindered by pound strength
  • Oil; continued to weaken, falling c. -3% in US dollar terms

UK borrowing

Data releases last week showed UK public sector finances to be in better shape than expected. Public sector net borrowing, excluding public sector banks, totalled £21.5bn in March. This was considerably higher than March 2022’s total of £5.2bn, but this reflects a change in the treatment of student loans to the tune of £7.2bn. Overall, full-year borrowing for the 2022-23 fiscal year was £139.2bn, well below the Office for Budget Responsibility (OBR) forecast of £152.4bn. This offers greater scope for the government to increase public spending or cut taxes ahead of the next general election. However, further out, it may be more challenging for the government to deliver borrowing as a percentage of GDP below the OBR’s forecast. The OBR’s forecast makes assumptions about productivity growth and assumes inflation returns to very low levels from 2024, both sources of risk to the forecast.

US economy

US GDP growth missed expectations in the first quarter of 2023, rising by +1.1% on a quarter-on-quarter annualised basis. This was a deceleration from the +2.6% rate delivered in the final quarter of 2022, and lower than the +1.9% rate economists had expected. Data showed that real consumption strengthened, surging +3.7%, driven by an acceleration in durable goods demand, especially autos and auto parts. In contrast, business investment fell by -0.4%, dragged down by weakness in the housing sector. Looking ahead, tighter credit conditions and weaker business spending intentions are expected to weigh on investment spending further.

Eurozone economy

European growth was weaker than expected in the first quarter, coming in at +0.1% quarter-on-quarter. This was a modest acceleration from the 0% growth reading in Q4 2022, but behind economists’ forecasts of +0.2%. While this is a weak reading, it does mean that the Eurozone avoided slipping into a technical recession. Within the Eurozone, Germany remains weaker than its peers. The -0.4% contraction in Q4 2022 did not lead to a rebound in Q1, but to a flat 0% reading. France, Italy and Spain all enjoyed a better outcomes, with readings of +0.2 - +0.5%. Looking ahead, the strength of business surveys points to a better period for the European economy, especially within the services sector. In contrast, manufacturing indicators remain weak, with softer demand still anticipated.

China economy

China’s Politburo met last week, sending a pro-growth message on the economy. Policy makers pledged that monetary policy will be "accurate and forceful", and fiscal policy "forceful and effective". Leaders also pledged to support China’s private sector and overseas businesses operating in China, by removing barriers to fair competition. However, the property sector received less reassuring words, with the Politburo once again reiterating that "housing is for living, not for speculation purposes". This is a signal that officials remain hawkish on property bubbles, even while the sector remains somewhat depressed. Since the start of the year, China’s GDP forecasts have been upgraded, with the economic reopening following the lifting of Covid-19 restrictions evolving better than some had feared. Growth is now expected to be close to, or even above, 6%. However, given that the recovery is expected to be services led, this may lend less support to global commodity demand than has been the case in prior China recoveries.


The Bank of Japan (BoJ) held its first monetary policy meeting with new Governor Kazuo Ueda at the helm. As expected, the BoJ opted to maintain its Yield Curve Control (YCC) policy and leave monetary policy unchanged. The YCC policy is the method through which the BoJ aims to guide 10 year government bond yields as part of efforts to achieve a 2% inflation target. Some market participants had expected a further broadening of the tolerance bands around the YCC, with higher rates elsewhere putting more pressure on the mechanism, but this did not come to pass. Furthermore, the BoJ did announce that a review of monetary policy would take place. The review is expected to last 12-18 months, which may suggest that policy will change more slowly than some had expected. While Japanese inflation is currently above target at 3.2%, it is trending down and is expected to be below target by the end of the year. This puts less pressure on the BoJ to raise rates.



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The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.


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