BoJ: Weaker easing expectations - Nomura

Yujiro Goto, Research Analyst at Nomura, suggests that expectations for an immediate BOJ easing are low according to the latest JCER survey.

Key Quotes

“Only six out of 40 (15%) BOJ watchers expect the BOJ to cut immediately by November (the next meeting is held from 30 October to 1 November). Another six BOJ watchers expect the BOJ to ease in December, but only 30% expect easing by year-end. By end-January, half of the BOJ watchers still expect a BOJ easing. These numbers are much lower than ahead of the recent BOJ meetings. For immediate easing expectations, expectations among BOJ watchers are at their lowest level since the February survey, while easing expectations within the next three months are also at their lowest since the March survey.

BOJ Governor Kuroda suggested a low possibility of an immediate easing over the weekend. We also judge the number of BOJ easings is likely to be less than before, as the BOJ has transformed its policy framework to sustain its easing. Thus, lower expectations for an immediate BOJ easing are unsurprising to us.

58% of BOJ watchers see the possibility of a policy rate declining to a range of -0.30% and -0.10% by end-2017, while their expectations on the reduction in the 10yr yield target look limited. BOJ watchers see the possibility of one or two rate cuts by the BOJ by end-2017, with the possibility of a cut in the 10yr yield target.

Subdued market expectations for an immediate BOJ easing suggest limited downside risks for USD/JPY from a BOJ disappointment. JPY has tended to appreciate after BOJ meetings so far this year, but its reactions are likely to be more muted after a BOJ decision to leave its policy unchanged.

Weaker expectations for changes in the 10yr yield target are also encouraging for the Bank to keep the JGB market stable, which is important for Japanese investors’ foreign bond investment. The external environment is pointing to a higher possibility of USD/JPY rising, while it is important for the BOJ to keep a stable JGB market. Board member Harada’s speech overnight is important to understand whether board members’ view on the new policy framework is consistent among members, as he is viewed as a strong believer of the efficacy of QE.”