Bank of Japan Meets After Kuroda Moves Yen: Decision-Day Guide

Japan’s central bank wraps up a policy board meeting on Friday after Governor Haruhiko Kuroda sent the yen on a roller-coaster ride over the past two weeks.

The Bank of Japan is forecast to keep its unprecedented asset-purchase plan unchanged when the two-day meeting ends, usually early in the afternoon. The focus is Kuroda, who is set to hold a press conference at 3:30 p.m. in Tokyo.

Following are key points to watch:

* Kuroda comments on the yen

Kuroda triggered the steepest rally in the yen this year and prompted economists to push back their forecasts for extra easing when he said on June 10 that the real effective exchange rate was “very” weak and unlikely to fall further.

The governor said on Tuesday that he wasn’t referring to nominal exchange rates or making any forecasts, and that he wasn’t intending to say he’s not seeking a weaker yen. The currency fell but is still stronger than it was before Kuroda caught traders off guard last week.

“The market is still digesting Governor Kuroda’s remarks on the yen and trying to determine whether he meant to tame the speed of weakening or stop it with a certain level in mind,” said Yuji Saito, director of foreign exchange in Tokyo at Credit Agricole SA.

The yen was at 123.01 per dollar at 4:17 p.m. in Tokyo on Thursday after touching a 13-year low of 125.86 on June 5.

* Monetary Policy

All 35 economists in a Bloomberg survey forecast that the central bank will maintain its plan to expand the monetary base at an 80 trillion yen ($651 billion) annual pace.

The BOJ has a long way to go to reach its inflation goal, with data for April putting its main gauge at 0 percent - two years after Kuroda pledged to achieve 2 percent in about two years.

The governor maintained an upbeat view on the outlook this week, saying that rising wages will help to spur inflation to the target around the six months through September 2016.

* Economic assessment

An upward review to capital expenditure that helped drive a faster expansion in the first quarter is likely to encourage the BOJ, said Taro Saito, an economist at NLI Research Institute.

Slackening export growth could make it harder for companies to work off an inventory buildup that was the single biggest contributor to the first-quarter expansion.

“The BOJ doesn’t need to act now but the economy is not at a stage where we can rule out the possibility of additional easing,” said Daisuke Uno, a strategist at Sumitomo Mitsui Banking Corp.

* Tapering Views

While Kuroda repeated this week it’s too early to discuss how the BOJ will exit its stimulus program, some economists are forecasting the BOJ will begin to slow the pace of its asset purchases as soon as next year.

Robert Feldman at Morgan Stanley MUFG Securities said the BOJ may surprise the market in 2016 by starting to taper asset purchases, given stronger wage growth.

Tomo Kinoshita at Nomura Holdings Inc. last month forecast the BOJ will start reducing its bond purchases in October 2016 because of restrictions on the supply of bonds.

Fourteen of 34 economists expect the tapering to begin in 2018 or later, with 11 saying it’s still unforeseeable. Four predict it will take place next year, according to a Bloomberg survey.

* Morimoto’s Last Meeting

This is the last board meeting for Yoshihisa Morimoto, who dissented in the 5-4 split vote in October to boost the pace of asset purchases. Yukitoshi Funo, a former executive of Toyota Motor Corp. who was among those decrying yen strength years before Prime Minister Shinzo Abe came to office in 2012, will succeed him.

* Any surprises?

Kuroda is seen to love a surprise. With all 35 economists in the Bloomberg survey predicting the BOJ will hold steady, a boost to stimulus would come as a jolt.

The governor has said the bank will “do whatever it can” to reach its inflation target.

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