Further Japan Stimulus May Be a Close Call

Matter of Time Before BOJ Makes Move?
  • Kuroda gave no hint of his appetite for more stimulus at Davos
  • Stocks have risen on bets for more BOJ stimulus this week

Some Bank of Japan officials view it a close call as to whether the policy board will add to stimulus at a meeting later this week, according to people familiar with discussions at the central bank.

Officials will be carefully watching economic data and market movements until the gathering ends on Jan. 29, said the people, who asked not to be identified because the talks are private.

It could be argued that the inflation outlook has worsened given the deeper slump in oil prices and dimming prospects for faster gains in base wages, according to the people. They also cautioned that the recent rout in global markets hasn’t hit Japanese economic indicators, and that spring wage negotiations aren’t over yet.

QuickTake Abenomics

Governor Haruhiko Kuroda has preserved his capacity to surprise the market after using his trip to Davos last week to play down the impact of recent turbulence on Japan’s economy. The board faces one of the thorniest policy meetings since Kuroda took the helm of the BOJ almost three years ago amid a reversal in the yen’s declines and the deep impact of falling oil prices on inflation.

“In the end, it’s all about what’s in Kuroda’s mind,” said Masamichi Adachi, an economist at JPMorgan Chase & Co. and a former BOJ official. “If he judges that risks are very high, he can bring the board around to adding more stimulus.”

Chance of Stimulus

In a note over the weekend after Kuroda’s interview on Friday, Goldman Sachs Group Inc. said there is a chance of increased stimulus on Jan. 29 but that the most likely scenario is in April. Kyohei Morita of Barclays Plc has said that unless the yen strengthens beyond 115 against the dollar, further stimulus is unlikely this week. The yen climbed 0.2 percent to 118.13 per dollar at 11:17 a.m. Tuesday in Tokyo from 118.30, following a 0.4 percent climb on Monday.

“At this stage, we don’t think the current market situation has been affecting corporate behavior unduly,” Kuroda said in an interview Friday with Bloomberg in Davos, Switzerland. “But, as I said, the market is the market, and markets could affect the real economy -- so we carefully watch.”

Heizo Takenaka, a former economy minister, said Monday that now is not the best time for the BOJ to bolster stimulus as the markets are calming down. Naoyuki Shinohara, a former high-ranking currency official at Japan’s Finance Ministry, said the impact of further easing may be limited compared with the BOJ’s previous monetary expansion.

Yasuhide Yajima, the chief Japan economist at NLI Research Institute, noted that Kuroda “gave optimistic views even a few days before bolstering stimulus in 2014."

‘Worsened Dramatically’

“What matters is the outlook, not the current situation, and the prospects for inflation in Japan worsened dramatically,” said Yajima, who forecasts action at the end of the meeting this week.

Japan’s stock markets rose for a second day Monday on expectations for further stimulus from the BOJ and the European Central Bank. The Topix index, which is down 10 percent this year, capped its biggest two-day rally since November 2014, even after the release of disappointing trade data.

People familiar with talks inside the bank told Bloomberg last week that officials are considering postponing for a third time in a year the time frame for reaching the inflation goal. The most recent schedule is for around the six months through March 2017.

Kuroda aimed to attain the inflation target in about two years when he launched his unprecedented stimulus program in April 2013.

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