Wed, Nov 01, 2017 - Page 10 News List

BOJ leaves stimulus program intact

LONG-TERM PLAN:The Japanese central bank’s nine-member board forecast that its 2 percent inflation target would be met at about the fiscal year that starts in April 2019

Bloomberg

The Bank of Japan (BOJ) left its massive monetary stimulus program unchanged even as it trimmed its inflation forecasts, signaling further divergence ahead from its global peers.

BOJ Governor Haruhiko Kuroda and the board yesterday voted 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 central bank 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.

Japanese Prime Minister Shinzo Abe’s election win this month has raised expectations that the central bank’s policy stance will continue, making any turn toward the exit even trickier, former board member Sayuri Shirai said.

“They have determined this is a long-term battle and they won’t ease policy further unless something drastic happens,” Nomura Securities Co senior economist Masaki Kuwahara said, adding that the central bank 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 at about the fiscal year that starts in April 2019.

The central bank’s key inflation gauge, which strips out fresh food, rose 0.7 percent in September, a government report showed last week.

The central bank does not 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.

Japan’s TOPIX pared losses after the decision, trading down 0.3 percent, compared with a 0.4 percent decline at the morning close.

Benchmark 10-year Japanese government bond yields remained unchanged at 0.065 percent in early afternoon trade.

The yen fell in the minutes after the decision was announced, but pared its loss to trade little changed on the day at ¥113.16 versus the US dollar as of 1:02pm in Tokyo.

Kuroda has stressed the importance of continuing monetary easing even as the central lags behind its counterparts in turning toward policy normalization.

The European Central Bank last week unveiled a plan to reduce bond purchases and investors see more than an 80 percent chance of another rate hike by the US Federal Reserve next month.

Kataoka, a reflationist who joined the board in July, at yesterday’s meeting said that it would be appropriate for the Bank of Japan 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 Japanese government bond yields as “hard to understand” and not clearly a better alternative.

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