Research Team at ANZ, notes that during the weekend interview BoJ Governor Kuroda said the comprehensive assessment was necessary to see what could be done to reach the 2% inflation target as soon as possible, and to review what was and what was not working well.
Key Quotes
“He indicated that more easing was possible at the September meeting and discussed a number of key areas of BoJ policy that are likely to be under review:
1. Negative rates. Kuroda continues to have a positive view on negative rates. He said key lending rates had fallen, which led to an increase in housing investment. On the other hand, he said businesses were a little more cautious about spending. He said this was due to their cautious stance on the international outlook – not domestic factors or policy. He said the BoJ will continue to monitor the impact of negative rates on banks’ profitability. Kuroda said that there was technically more room for rate cuts, noting European central banks had taken rates lower. This suggests negative rate policy is set to stay.
2. JGB purchases. Kuroda indicated there may be a change to the JGB purchasing framework. This may entail a more flexible target of JGB purchases (say JPY70-90trn) rather than a point target, which is currently JPY80trn per annum. There is also the prospect of increasing the maturity profile of JGB holdings.
3. Helicopter money. Kuroda reiterated the view that helicopter money is prohibited. However, he said further monetary easing could be implemented alongside fresh fiscal stimulus. Additional stimulus would provide a new source of JGBs for the BoJ.
4. Inflation target. Kuroda regards the 2% inflation target as a global standard and this will not be changed. However, the two-year time frame for achieving the target could be softened.
5. Communication. Kuroda said that there was scope for BoJ policy to be more predictable as recent decisions had tended to surprise the market in an undesirable way.
Our expectation is that the BoJ will ease policy further at the September meeting, likely via more cuts to negative rates and an increase in JGB purchases. We also expect the two-year time frame for the 2% inflation targeted to be changed. It will probably be difficult for the BoJ to materially surprise the market, thus it’s unlikely that the BoJ can significantly weaken the JPY.”
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