(Bloomberg) -- The Bank of Japan is forecast to keep its interest rate settings unchanged Friday, with the yen’s plunge this week to a fresh 34-year low making it more likely the bank will tone down its stance on keeping policy easy.

Almost all BOJ watchers predict no policy change at the Friday conclusion of a two-day gathering. Authorities are expected to keep the benchmark rate in a range between 0% and 0.1% after they ended the most aggressive monetary easing in modern history last month, according to a Bloomberg survey. 

The spotlight on Governor Kazuo Ueda will be more intense than usual as currency officials have intensified warnings to traders over the yen, and with business executives increasingly vocal about their currency concerns. Market players will scrutinize the policy statement, the quarterly economic outlook and Ueda’s remarks for hawkish signals, and for anything new on bond purchase plans. 

“This meeting is to examine the impact of the shift in the policy framework in March,” said Mari Iwashita, chief market economist at Daiwa Securities. “Given the weak yen and elevated oil prices, there is a chance for upside risks to intensify for inflation.” 

The yen fell through the key threshold of 155 to the dollar this week, the weakest level since 1990, keeping currency traders on high alert for the possibility of government intervention. Japan’s top currency officials have indicated frustration over the yen’s continued slide even after the BOJ’s first rate hike since 2007 last month. 

In a sign of a potential shift in communications, Ueda didn’t emphasize that financial conditions will stay accommodative when he appeared in parliament earlier this week. Instead, he repeatedly said the bank will raise rates if the inflation trend rises toward the bank’s 2% target.

What Bloomberg Economics Says...

“We’ll be looking to see how hawkish Governor Kazuo Ueda is. The BOJ could also take another step toward normalization by announcing the start of quantitative tightening.”

Taro Kimura, economist

Click here to read the full report.

A vital point Friday will be the bank’s quarterly economic projections. While the BOJ is widely expected to upgrade its price outlook after its March policy pivot, three quarters of surveyed economists say the assessment of the risk balance will take on added importance this time. 

Ueda will endeavor to strike a delicate balance. Even if he dilutes the dovish hue of his policy stance, he probably won’t want to sound too hawkish while he’s still in the process of reviewing the impact of the biggest policy shift in a decade. Japan’s economy isn’t on a firm footing. Many analysts estimate that the economy contracted in the first quarter after eking out growth to avoid a technical recession in the previous quarter.

That leaves slowing down bond purchases — or signaling the intention to do so — as a way to put a floor under the yen in the eyes of some analysts. The BOJ technically doesn’t have to mention bond buying in the statement, as it’s no longer a policy objective. Still, as the bank owns half the market, it may choose to allay concerns about its plans with a pledge to continue some purchases to avoid potential ructions. 

The BOJ usually releases its policy statement and quarterly economic outlook report around noon, followed by Ueda’s press conference at 3:30 p.m. in Tokyo. 

Here is what to watch for

  • To ease pressure on the yen, Ueda could reiterate the BOJ’s pledge to change policy if foreign exchange rate moves have a large impact on the outlook for inflation. It’s possible he will even amplify that message.
  • The extent of revisions to the bank’s inflation forecasts will be monitored as oil prices remain elevated and with many workers in Japan set to get the biggest wage increases in three decades. The bank is likely to forecast price growth of around 2% in a new projection for fiscal 2026, according to people familiar with the matter.
  • How the BOJ assesses the degree of certainty of its forecasts is also an important point that could hint at the timing for the next hike. The bank could keep saying that the likelihood is rising gradually in the outlook report, or Ueda could make that point at his press conference.
  • The governor repeatedly said financial conditions will stay accommodative at a post-meeting conference in March, comments that weighed on the yen. How he might frame the outlook will be a key point in April. The governor could shed more light on the likelihood of raising rates if the price trend rises.
  • The BOJ said in March it would broadly buy roughly the same amount of bonds as previously. In a footnote, it said it has purchased about 6 trillion yen ($38.8 billion) per month as a reference. Bond traders are watching for any changes.

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