BOJ loses bark and bite un­der hum­bled Kuroda

No eas­ing ex­pected at Oct 31-Nov 1 meet­ing

Kuwait Times - - BUSINESS -


As his term winds down, Bank of Ja­pan Gover­nor Haruhiko Kuroda has re­treated from both the rad­i­cal poli­cies and rhetoric of his early tenure, sug­gest­ing there will be no fur­ther mon­e­tary eas­ing ex­cept in re­sponse to a big ex­ter­nal shock. In a clear de­par­ture from his ini­tial “shock and awe” tac­tics to jolt the na­tion from its de­fla­tion­ary mind­set, he has even taken to flag­ging what lit­tle change lies ahead, try­ing pre­dictabil­ity where sur­prise has failed.

This new ap­proach will be on show next week, when the BOJ is set to keep pol­icy un­changed de­spite an ex­pected down­grade in fore­casts that could show Kuroda won’t hit his per­pet­u­ally post­poned 2 per­cent in­fla­tion tar­get be­fore his five-year term ends in April 2018. “The days of try­ing to rad­i­cally heighten in­fla­tion ex­pec­ta­tions with shock ac­tion are over,” said a source fa­mil­iar with the BOJ’s think­ing. “No more regime change.”

Kuroda told par­lia­ment last week that while the BOJ might again stretch the tim­ing for its in­fla­tion tar­get, he saw no need to ease at the Oct 31-Nov 1 pol­icy meet­ing. “There may be some mod­i­fi­ca­tion to our fore­cast that in­fla­tion will hit our 2 per­cent tar­get dur­ing fis­cal 2017,” he said, the first time he has of­fered hints on up­com­ing pro­jec­tions. Ja­pan’s core con­sumer prices fell for a sev­enth straight month in Septem­ber as house­hold spend­ing slumped, data showed on Fri­day, re­in­forc­ing the view it will take some time for in­fla­tion to ac­cel­er­ate to its tar­get.

In the past, the mar­ket has learned to ex­pect the un­ex­pected. In 2013, when the BOJ de­ployed its mas­sive as­set-buy­ing pro­gram, dubbed “quan­ti­ta­tive and qual­i­ta­tive eas­ing” (QQE), his shock ther­apy boosted stocks and weak­ened the yen. Fur­ther sur­prises came with an ex­pan­sion of QQE in Oc­to­ber 2014, and then the switch to neg­a­tive rates early in 2016, which he had de­nied was an op­tion just days be­fore. But the law of di­min­ish­ing re­turns bought him less bang for each buck. “When mon­e­tary pol­icy op­tions be­gin to wear out, the shock ap­proach doesn’t work any­more,” said Toshiro Mu­toh, for­mer BOJ deputy gover­nor and now chair­man of Daiwa In­sti­tute of Re­search. “That’s why the BOJ needs to avoid sur­pris­ing mar­kets and make its in­ten­tions more pre­dictable through guid­ance.”

Out with the New

When in­fla­tion gave up the ghost again af­ter ini­tially show­ing signs of life, the BOJ was forced to re­vamp its pol­icy frame­work last month to one bet­ter suited to a pro­tracted bat­tle against de­fla­tion. Since then, Kuroda has been jet­ti­son­ing nearly ev­ery­thing that made his BOJ unique. He once de­rided his pre­de­ces­sor for blam­ing de­fla­tion on de­mo­graph­ics and Ja­pan’s low growth po­ten­tial, and in 2013 ac­cepted sole re­spon­si­bil­ity for hit­ting 2 per­cent in­fla­tion. Now he says mon­e­tary pol­icy alone can­not beat de­fla­tion and has called for gov­ern­ment ef­forts to boost growth. Gone are the fixed time­frames he set for hit­ting that price goal, along with his re­as­sur­ances that he would do “what­ever it takes” to beat de­fla­tion. In a sign that the ris­ing cost of his 80 tril­lion yen ($765 bil­lion) a year bond buy­ing could dis­cour­age fur­ther eas­ing, the cen­tral bank said on Mon­day that some re­gional banks were strug­gling to earn prof­its as mar­gins nar­rowed. “It would prob­a­bly take some­thing very dam­ag­ing to the econ­omy, like a huge yen spike, for the BOJ to ease again,” said Masaaki Kanno, a for­mer BOJ of­fi­cial who is now chief Ja­pan econ­o­mist at JPMor­gan Se­cu­ri­ties. The BOJ’s pol­icy tar­get­ing the pace of money print­ing has been re­placed by a com­plex “yield curve con­trol” (YCC) with two tar­gets - a short-term rate tar­get of mi­nus 0.1 per­cent and a 10-year bond yield tar­get “around” zero per­cent.


TOKYO: This pic­ture shows the Bank of Ja­pan head­quar­ters yes­ter­day.

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