BoJ: 2017 ends with no policy changes – Nomura

At its 20-21 September monetary policy meeting, the BOJ made no changes to its current policies for market operations under its program of quantitative and qualitative monetary easing with yield curve control, points out Takashi Miwa, Research Analyst at Nomura.

Key Quotes

“In our view, the lack of any policy changes is in line with expectations, as the Bloomberg consensus survey showed essentially no market participants expecting any change in policy. The decision means that 2017 will draw to a close without any changes by the BOJ to its current policies.” 

“Goushi Kataoka still opposed for the same reasons

• As at the 30-31 meeting, board member Goushi Kataoka opposed both the direction of the Bank's monetary policy management in general and the yield curve control policy specifically. In his dissent to the overall management of policy, Mr Kataoka argued that it ought to be added in writing that it would be appropriate for the bank to come up with additional monetary easing measures in the event that it takes longer than intended to achieve 2% inflation. Concerning the yield curve control policy, Mr Kataoka argued that it would be appropriate for the Bank to purchase long-term JGBs so that interest rates further out might be pulled down.
• Mr Kataoka's position on these topics is essentially as it was in October, with some subtle changes. We think it is unlikely that other board members will add their voices to Mr Kataoka's dissent in calling for additional easing measures, as the BOJ's take on the economy seems to have become more optimistic against the backdrop of robust economic performance overseas, and a rise in overseas interest rates linked to the passage of tax reform in the US could potentially help make the BOJ's current policies more effective.” 

“Expectations for a hike to the long-term interest rate target and the likelihood of such a change

In a speech given on 13 November 2017, BOJ Governor Haruhiko Kuroda commented on the notion of a "reversal rate", denoting the rate beyond which cutting interest rates harms rather than helps the economy. Since then, some market participants have begun expecting a hike to the long-term interest rate target sooner rather than later. We think that observers interested in understanding the "reversal rate" idea and the implications of Mr. Kuroda's mention of it would do well to pay close attention to Mr Kuroda's comments in his press conference and subsequent comments by BOJ officials. However, going by everything else that Mr Kuroda and Deputy Governor Hiroshi Nakaso have said to date, we think it is a stretch to read Mr. Kuroda's comments as laying the groundwork for a hike to the long-term interest rate target in the near future.”