- Just over half forecast Kuroda will expand monetary program
- No action is possible as BOJ mends communication with markets
The Bank of Japan is as hard to predict as ever. Just over half of economists surveyed by Bloomberg forecast an expansion of monetary stimulus at the conclusion of the BOJ’s policy review next week. Others point to November, December and next year.
A small minority still expect no change in the foreseeable future. Among those who do see action this month or later, 53 percent project a deeper cut to the negative rate placed on a portion of commercial banks’ reserves at the BOJ. Thirty-five percent are looking for more purchases of Japanese government bonds, with some suggesting the BOJ may shift to a target range to give it more flexibility.
While there’s been little change in the economy since the last meeting in July, there has been a great deal of activity at the BOJ. Staff are in the midst of a comprehensive review of policy meant to help the central bank meet its 2 percent inflation target. Governor Haruhiko Kuroda appears to have embarked on a new communications strategy to increase transparency about his thinking.
Despite the efforts at clearer communication, there is a great deal of uncertainty and speculation about what review will mean for the BOJ’s unprecedented easing program. Kuroda has said it won’t result in reduced stimulus. Some economists see an immediate expansion coming.
‘Easing is Inevitable’
“Further easing is inevitable,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “I see more than a 70 percent chance for additional easing because they don’t want the market to think the BOJ is raising the white flag. A further cut to the negative rate is promising.”
Others argue that the central bank won’t move this time. They cite economic fundamentals, which haven’t shifted since the BOJ fine-tuned policy in July, and the benefits of waiting until after a Federal Reserve meeting that could overshadow any BOJ action. Pausing would also give the BOJ more time to improve its signaling to the market.
“The BOJ is obviously trying to rebuild its communication strategy,” said Kiichi Murashima, an economist at Citigroup Inc. “They will make it a priority that markets will fully digest the review’s content before conducting further easing. That’s why I expect them to stand pat this time.”
‘Make it Flexible’
Daiju Aoki, an economist at UBS Group AG, said he expects the BOJ to flag a shift in emphasis over the medium to long term from the volume of asset purchases to the negative rate.
“In terms of quantity, they will make it flexible by putting it in a range in order to prepare for future risks,” he said.
A total of 86 percent of the 43 survey respondents projected an expansion by Kuroda at some time, with only 14 percent estimating the governor has reached the end of the easing road.
"They’ll look for the right timing,” said Takeshi Minami, chief economist at Norinchukin Research Institute, who expects a move in November. “The BOJ will explain the pros and cons of the negative-rates policy and conclude the merits are bigger than the demerits, which will lay the foundation for deeper cuts down the road.”