Strange times at the Bank of Japan. Its most recent pronouncement left the market underwhelmed, and there’ll be a longish gap between that and the next meeting in September – which will also serve up an assessment of how its own policies are shaping up.
Some official commentary on Monday offered precious little insight. The BoJ published a ‘summary of opinions’ from its July 28-29 policy meeting – the one in which it elected to maintain its negative interest rate at the level introduced in January and keep the scope of its quantitative and qualitative easing programme on hold.
The document, edited by Governor Haruhiko Kuroda, is a list of thoughts from that meeting as jotted down by monetary policy committee members and government officials.
Two commentators spoke of the need for better communication. One monetary policymaker said:
Given that the Bank’s monetary policy measures are very aggressive and powerful, the Bank should provide more detailed and articulate explanations than before, thereby making sure that the policy measures have their intended effects.
Meanwhile, a government official present added:
The government also deems it important that the Bank will fully explain to the public its thinking on the changes in monetary policy.
Analysts at Daiwa Capital Markets can only agree with that. While they said the summary offered “little additional insight into the rationale behind the decision”, they said:
But it did provide a little more background into the decision to launch a review of the Bank’s policy framework, which in particular highlighted that the review will not examine whether to reduce the inflation target, as some have speculated. Instead the review, which will be available at the next BoJ meeting, will be focused on what is required to meet the existing 2% target “at the earliest possible time”.
Elsewhere, one policymaker said they did not believe that the BoJ would attain its 2 per cent inflation target by fiscal 2017 – the current timescale, for a goal which has been repeatedly postponed (in the original announcement in 2013, Mr Kuroda said he would get inflation to this level within two years).
It is less likely that inflation expectations will rise rapidly, and thus it is projected that the inflation rate will not reach 2 percent in fiscal 2017.
There are also real concerns that, after more than 3 years of Abenomics and monetary easing, there is less and less left in the tank. From one sceptic (NB – in the end, the BoJ did ramp up its purchases of exchange traded funds to ¥6tn):
The annual purchase of ETFs of 6 trillion yen would be excessive, as purchases in such large amounts distort the pricing mechanism in the stock market and make the Bank’s exit policy more difficult. It also raises concern over an adverse impact on the Bank’s financial soundness.
And from another present:
An increase in the Bank’s ETF purchases would make it clear that monetary easing is approaching its limit. Moreover, this action can be regarded as an incremental approach to monetary easing, and there is a risk of triggering endless expectations for further monetary easing.
Naohiko Baba at Goldman Sachs argued there is a “very fluid situation” at the BoJ right now, but believes it will be paying more attention to calibrating a balance between the two main strands of its easing programme, now we are in negative rate land:
That said, some policy board members expressed the following concerns about a decline in super-long-term interest rates, and we think this could provide an insight.
We think the BOJ in particular is aware that it will need to prop up super-long-term rates by adjusting the volume of JGB purchases in the super-long zone.
The BoJ’s next monetary policy meeting will be held on September 20-21.
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