BOJ Governor Kuroda confirms rate cut as likely easing tool – Nomura

Yujiro Goto, Research Analyst at Nomura, notes that the BOJ Governor Kuroda suggests that a rate cut is the most likely easing tool, when necessary.

Key Quotes

“He said that “with regard to possible options for additional easing, the main policy tool will be further cuts in the negative short-term policy interest rate and lowering the target level of the long-term interest rate,” suggesting rate cuts will be used as the major policy tool going forward, as we expected. He still mentioned the possibility of a further expansion of asset purchases, from both a quality and quantity stand point. However, as the Bank focuses more on yield curve than quantity, the BOJ is less likely to increase the pace of asset purchases any time soon.

The latest opinion poll survey conducted by Nikkei (23-25 September) shows that the negative rate policy remains unpopular among voters. 49% of respondents had a negative view on the negative rate policy, while only 29% see the policy as positive. Prime Minister Abe’s economic policy, Abenomics, is also not viewed as positive among voters, as previous polls have shown. Nonetheless, the popularity ratings of the Abe cabinet and ruling coalition both remain high and the unpopular negative rate is still unlikely to lead to political turmoil, as the popularity gap between the ruling coalition and opposition parties remains elevated.

Governor Kuroda is scheduled to speak again this week (29 September), while the BOJ is also scheduled to release two pieces of important information, the summary of opinions at the 20-21 September meeting and the guide on JGB purchase operations in October. We judge the new policy framework, which has so far avoided market volatility, has enabled JPY to weaken gradually, as 1) it avoids the danger of deterioration in risk sentiment by sudden tapering, 2) the policy rate cut will be less harmful for the financial sector, and 3) expectations for joint efforts by the BOJ and the government will continue. Nonetheless, JGB market stabilisation is important for JPY weakness, and the two pieces of information, which are released on Friday, will be key events that should reduce uncertainty about the new operation framework and JPY outlook.”