15 Jul 2014
Exit from BoJ’s ultra-loose policies is still far away - BNP Paribas
FXStreet (Łódź) - Raymond Van Der Putten from BNP Paribas comments on BoJ's decision today to leave monetary policy and its medium-term projections unchanged.
Key quotes
"Excluding the effects of the consumption tax hikes in April 2014 (3 points) and October 2015 (2 points), consumer prices could increase by 1.9% in FY2015 and 2.1% in FY2016."
"It implies that in the course of 2015, the underlying trend in inflation should be close to 2%, the BoJ’s target. This indicates that there is no need for stepping up monetary easing."
"However, it is too early yet to envisage an exit strategy from the very loose monetary stance. A problem for the authorities is that if long-term interest rate start rising in line with inflation expectations this could be catastrophic for the heavily indebted public sector."
"With elections for the Lower and Upper House to be held in 2016, the government is not so keen on fiscal consolidation, at least not in the short-term. On the contrary, we expect that the fiscal stance will become much more accommodative next year."
"The only solution for keeping the budget deficit under control in the medium term is to increase potential output. Hence,the government’s emphasis on structural reforms, the so-called third arrow."
"Nevertheless, the government’s objective, to raise potential output to 2% in the medium term, looks very optimistic."
"We expect that the exit of the BoJ’s ultra-loose policies is still far away. Once inflation is close to the 2% target in early 2016, the Bank is likely to continue its asset purchases to keep long-term interest rates under control."
Key quotes
"Excluding the effects of the consumption tax hikes in April 2014 (3 points) and October 2015 (2 points), consumer prices could increase by 1.9% in FY2015 and 2.1% in FY2016."
"It implies that in the course of 2015, the underlying trend in inflation should be close to 2%, the BoJ’s target. This indicates that there is no need for stepping up monetary easing."
"However, it is too early yet to envisage an exit strategy from the very loose monetary stance. A problem for the authorities is that if long-term interest rate start rising in line with inflation expectations this could be catastrophic for the heavily indebted public sector."
"With elections for the Lower and Upper House to be held in 2016, the government is not so keen on fiscal consolidation, at least not in the short-term. On the contrary, we expect that the fiscal stance will become much more accommodative next year."
"The only solution for keeping the budget deficit under control in the medium term is to increase potential output. Hence,the government’s emphasis on structural reforms, the so-called third arrow."
"Nevertheless, the government’s objective, to raise potential output to 2% in the medium term, looks very optimistic."
"We expect that the exit of the BoJ’s ultra-loose policies is still far away. Once inflation is close to the 2% target in early 2016, the Bank is likely to continue its asset purchases to keep long-term interest rates under control."