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▼ BOJ Holds Off On More Easing With U.K. Vote, Election Ahead
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TOKYO (Bloomberg) — The Bank of Japan refrained from expanding monetary stimulus as Gov. Haruhiko Kuroda and his board continue to gauge the economic impact of their unpopular negative-rate policy ahead of an election next month.
With the uncertain outlook for global markets also giving reason for pause, the BOJ held its key interest rate at minus 0.1 percent and kept the annual target for expanding the monetary base at ¥80 trillion. About 28 percent of economists in a Bloomberg survey had forecast additional easing at this meeting, with 55 percent looking to the next gathering on July 29, when the BOJ will update its inflation projections.
By holding off on further expansion now, Kuroda can better consider the path of U.S. monetary policy, watch the impact of Britain’s vote on whether to leave the European Union and see the outcome of a House of Councillors’ election on July 10. The yen has surged this month — hurting Japanese exporters and the prospects for more wage growth and consumer spending — amid weakening expectations for U.S. rate hikes and the risk of the Britain exiting the EU.
“The BOJ will have to take bold action to arrest the strengthening yen and if it tries something in line with what it did before, there’ll be disappointment,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “With the Brexit vote ahead, the BOJ couldn’t move this time because the result on June 23 may erase the impact of whatever it did now.”
The yen has surged 15 percent this year, even with the introduction of negative rates, and strengthened to 104.79 at 12:18 p.m. and the TOPIX stocks index closed the morning session down 1.2 percent, before the BOJ announcement.
If Britain votes for Brexit, the Japanese currency may gain as much as ¥6 per dollar and while the Nikkei 225 Stock Average could drop by 3,000, according to a report by Mizuho Research Institute earlier this month.
The BOJ’s immediate outlook for inflation deteriorated, something that’s sure to reinforce expectations for board members to trim their projections when they update these at the July meeting. Thursday’s statement said the year-on-year change in consumer prices is “likely to be slightly negative or about zero percent for the time being.” In April, the BOJ said it is “likely to be about zero percent for the time being.” Pressure has been rising for Kuroda to bolster stimulus soon given tepid economic growth and inflation nowhere near its 2 percent inflation goal.
Economic data since the April meeting show core consumer prices falling 0.3 percent while a BOJ inflation gauge that excludes fresh food and energy slowed to 0.9 percent. A slight rebound in gross domestic product in the first quarter provided little optimism for inflationary pressure, with weak private consumption and business investment contracting.
With the risk of further declines in consumer spending, Prime Minister Shinzo Abe on June 1 postponed raising the sales tax to 2019 from 2017 after the previous hike in 2014 sent the economy into a recession.
Nobuyuki Nakahara, an influential adviser to Abe, said in an interview last week that Kuroda should expand government-bond purchases for now — rather than reduce the negative benchmark interest rate — as additional monetary stimulus at the moment would dovetail well with fiscal policy, given Abe’s move to delay increasing the levy.
Analysts in the Bloomberg survey said that when the BOJ does adjust policy, they see increased purchases of exchange-traded funds and a deeper cut to negative interest rates as the two most likely actions.
“They missed a chance to surprise markets and make a big impact with additional stimulus,” said Hiroshi Miyazaki, an economist at Mitsubishi UFJ Morgan Stanley, who expected further easing.
Going into a fourth year of Kuroda’s record stimulus, the BOJ’s balance sheet swelled to 81 percent of the nation’s GDP at the end of March, far larger than 25 percent for the U.S. Federal Reserve and 28 percent for the European Central Bank, according to a BOJ report on June 3.
The Bank of Tokyo-Mitsubishi UFJ Ltd. is considering dropping out as one of 22 primary dealers of government bonds, providing the latest sign of stress in a debt market that has struggled to cope with the unprecedented monetary stimulus and the advent of negative rates.
With the uncertain outlook for global markets also giving reason for pause, the BOJ held its key interest rate at minus 0.1 percent and kept the annual target for expanding the monetary base at ¥80 trillion. About 28 percent of economists in a Bloomberg survey had forecast additional easing at this meeting, with 55 percent looking to the next gathering on July 29, when the BOJ will update its inflation projections.
By holding off on further expansion now, Kuroda can better consider the path of U.S. monetary policy, watch the impact of Britain’s vote on whether to leave the European Union and see the outcome of a House of Councillors’ election on July 10. The yen has surged this month — hurting Japanese exporters and the prospects for more wage growth and consumer spending — amid weakening expectations for U.S. rate hikes and the risk of the Britain exiting the EU.
“The BOJ will have to take bold action to arrest the strengthening yen and if it tries something in line with what it did before, there’ll be disappointment,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “With the Brexit vote ahead, the BOJ couldn’t move this time because the result on June 23 may erase the impact of whatever it did now.”
The yen has surged 15 percent this year, even with the introduction of negative rates, and strengthened to 104.79 at 12:18 p.m. and the TOPIX stocks index closed the morning session down 1.2 percent, before the BOJ announcement.
If Britain votes for Brexit, the Japanese currency may gain as much as ¥6 per dollar and while the Nikkei 225 Stock Average could drop by 3,000, according to a report by Mizuho Research Institute earlier this month.
The BOJ’s immediate outlook for inflation deteriorated, something that’s sure to reinforce expectations for board members to trim their projections when they update these at the July meeting. Thursday’s statement said the year-on-year change in consumer prices is “likely to be slightly negative or about zero percent for the time being.” In April, the BOJ said it is “likely to be about zero percent for the time being.” Pressure has been rising for Kuroda to bolster stimulus soon given tepid economic growth and inflation nowhere near its 2 percent inflation goal.
Economic data since the April meeting show core consumer prices falling 0.3 percent while a BOJ inflation gauge that excludes fresh food and energy slowed to 0.9 percent. A slight rebound in gross domestic product in the first quarter provided little optimism for inflationary pressure, with weak private consumption and business investment contracting.
With the risk of further declines in consumer spending, Prime Minister Shinzo Abe on June 1 postponed raising the sales tax to 2019 from 2017 after the previous hike in 2014 sent the economy into a recession.
Nobuyuki Nakahara, an influential adviser to Abe, said in an interview last week that Kuroda should expand government-bond purchases for now — rather than reduce the negative benchmark interest rate — as additional monetary stimulus at the moment would dovetail well with fiscal policy, given Abe’s move to delay increasing the levy.
Analysts in the Bloomberg survey said that when the BOJ does adjust policy, they see increased purchases of exchange-traded funds and a deeper cut to negative interest rates as the two most likely actions.
“They missed a chance to surprise markets and make a big impact with additional stimulus,” said Hiroshi Miyazaki, an economist at Mitsubishi UFJ Morgan Stanley, who expected further easing.
Going into a fourth year of Kuroda’s record stimulus, the BOJ’s balance sheet swelled to 81 percent of the nation’s GDP at the end of March, far larger than 25 percent for the U.S. Federal Reserve and 28 percent for the European Central Bank, according to a BOJ report on June 3.
The Bank of Tokyo-Mitsubishi UFJ Ltd. is considering dropping out as one of 22 primary dealers of government bonds, providing the latest sign of stress in a debt market that has struggled to cope with the unprecedented monetary stimulus and the advent of negative rates.
- June 17, 2016
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