Friday, November 20, 2015

BoJ: No change to monetary policy and no easing - Nomura

FXStreet (Delhi) – Research Team at Nomura, notes that BoJ made no changes in its monetary policy yesterday and no additional easing was announced despite second straight quarter of negative growth.

Key Quotes

“The BOJ’s Policy Board convened on 18–19 November and decided to leave monetary policy unchanged, as was widely expected by the markets. One focus point for this meeting had been on how the BOJ would view the first set of preliminary GDP figures for 2015 Q3 showing a second straight quarter of negative growth. At the press conference, governor Haruhiko Kuroda said that negative growth in Q3 was due primarily to inventory adjustments, and with consumer spending and exports turning upwards, he retained his bullish stance for the economic outlook.”

“No major concerns shown about expected inflation rate: In the BOJ’s monetary policy statement, the Policy Board did not change its economic assessment, but in a comment about inflation expectations, it added that "some indicators have recently shown relatively weak developments." We think this refers not only to the decline in breakeven inflation (BEI) mentioned during the press conference but also the Cabinet Office’s October Consumer Confidence Survey showing a 5.3ppt m-m decline in the number of respondents expecting prices to be higher in one year’s time to 81.0%. Mr Kuroda expressed his view that inflationary expectations also reflected recent changes in consumer behavior and corporate price-setting, and emphasized that indicators alone were not enough to gauge expected inflation rates. The governor’s statement suggests that the BOJ does not have substantial concerns about declines in these indicators at this juncture.”

“BOJ focusing on spring 2016 wage negotiations: Of particular note was Mr Kuroda’s comments that growth in wages appears to be slow at present, and that next spring’s wage negotiations will warrant close attention. The BOJ has long repeated its view that there is an inseparable correlation between wage increases and inflation, and we will be interested to see what the BOJ will do if wage increases stemming from spring 2016 negotiations come in below its expectation.”

“BOJ discussion on increasing reserves is entirely rational: At the press conference, Mr Kuroda also said that discussions were underway on how to increase BOJ reserves. He commented that while BOJ earnings were strong in the near term, they could well weaken when interest rates rise, and there is thus a need to equalize these swings. We think this is an entirely rational viewpoint, and think the BOJ ought to increase its reserves as its earnings rise.”
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