- BOJ Keeps Stimulus Unchanged as It Trims Inflation Outlook
The Bank of Japan left its massive monetary stimulus program unchanged even as it trimmed its inflation forecasts, signaling further divergence ahead from its global peers.
Governor Haruhiko Kuroda and the board voted on Tuesday to maintain the central bank’s yield curve control program and asset purchases, a result predicted by all 43 economists surveyed by Bloomberg. The vote was 8-1, with new board member Goushi Kataoka dissenting.
The BOJ is under little pressure to take additional action even though inflation is well below its 2 percent target. Japan’s economy is on track for the longest expansion in 16 years, stocks are at the highest level in two decades and the labor market is the tightest in a generation. Prime Minister Shinzo Abe’s election win this month has raised expectations that the central bank’s current policy stance will continue, making any turn toward the exit even trickier, according to former board member Sayuri Shirai.
‘Long-Term Battle’
“They have determined this is a long-term battle and they won’t ease policy further unless something drastic happens,” said Masaki Kuwahara, senior economist at Nomura Securities Co., adding that the BOJ will continue to cut its inflation forecasts even if it “looks bad.”
The nine-member board maintained its view that its 2 percent target is likely to be met around the fiscal year that starts in April 2019.The BOJ’s key inflation gauge, which strips out fresh food, rose 0.7 percent in September, a government report showed last week.
The central bank doesn’t see the need to expand its stimulus because it has concluded that the improving output gap and tightening labor market will continue to push inflation higher over the longer term, people familiar with the matter told Bloomberg earlier this month.
Market Reaction
Japan’s Topix index pared losses after the decision, trading down 0.3 percent compared with a 0.4 percent decline at the morning close. Benchmark 10-year JGB yields remained unchanged at 0.065% in early afternoon trade. The yen weakened in the minutes after the decision was announced, but pared its loss to trade little-changed on the day at 113.16 versus the dollar as of 1:02 p.m. In Tokyo.
Kuroda has stressed the importance of continuing monetary easing even as the BOJ lags behind its counterparts in turning toward policy normalization. The European Central Bank unveiled a plan to reduce bond purchases last week and investors see more than an 80 percent chance of another rate hike by the Federal Reserve in December.
Difference of Opinions
Kataoka, a reflationist who joined the board in July, said at Tuesday’s meeting that it would be appropriate for the BOJ to buy Japanese government bonds so that the 15-year yield would remain under 0.2 percent. He also dissented from the inflation overshooting commitment, saying that if there was a delay in reaching the price target due to domestic factors, the BOJ should take additional easing.
Kataoka’s dissenting votes are unlikely to shift the BOJ’s course, said Takahiro Sekido, a former BOJ official who is now a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. Sekido described Kataoka’s suggestion to target 15-year JGB yields as “hard to understand” and not clearly a better alternative.
