BOJ Runs Into Critical Analysts After Kuroda Easing Shock

Hours after the Bank of Japan caught central-bank watchers off guard by boosting stimulus, officials were fending off complaints about its communications.

A meeting on Oct. 31 with about 50 analysts and economists on the BOJ’s new outlook ran on for two hours -- twice the usual time -- as the discussion turned to how well Governor Haruhiko Kuroda and other officials telegraphed their views before the decision, said people who were present. The questions came like a torrent, with some complaining about the BOJ’s bond purchase plan and its communications with the market, according to analysts who asked not to be named as the gathering was private.

While Kuroda said he didn’t intend to surprise anyone with the decision to bolster already-unprecedented easing, springing the news on the market added to the punch. The risk for Kuroda is that he may undermine the BOJ’s credibility with some people in the market who count on central bank officials for clear and timely communication.

“We shouldn’t take Kuroda’s comments at face value,” said Noriatsu Tanji, chief rates strategist at RBS Securities Japan Ltd. in Tokyo. “He offered a completely different view from what he said just three days earlier. Instead of listening to Kuroda, we should look at prices and the distance to the BOJ’s inflation target.”

Tanji wasn’t at the Oct. 31 briefing. Officials at the bank weren’t immediately able to comment on the gathering.

The Topix index of shares soared 4.3 percent on Oct. 31, the most in 16 months, on news of the BOJ’s easing. The yen dropped as low as 112.48 per dollar, its weakest since December

2007. Just three of 32 analysts surveyed by Bloomberg News ahead of the decision had forecast additional easing.

Longest Meeting

The BOJ typically briefs economists and analysts every three months when it releases forecasts for economic growth and inflation.

The Oct. 31 meeting, which included economists and analysts of the bond, stock and foreign exchange markets, was the longest since Kuroda took office in March 2013, some of those present said.

It was more lengthy than a briefing following the decision in April last year when Kuroda introduced record stimulus.

Officials didn’t call an end to last week’s gathering, unlike previous ones, the analysts said.

Shinichi Uchida, head of the monetary affairs department, and Kazuhiro Masaki, head of policy planning division, attended the meeting, according to the people.

Finding Forgiveness

Not everyone has been critical of the bank’s actions.

“Kuroda knows he’ll be forgiven for this surprise,” said Hideo Kumano, an economist at Dai-ichi Life Research Institute and former BOJ official. “Markets clearly liked his action and their reactions have been favorable so far.”

The yen dropped below 115 per dollar today for the first time in seven years while the Topix held near a six-year high. The weaker yen is helping some Japanese exporters like Toyota Motor Corp. while the stock-market gains increase wealth for investors.

Kumano said that while it will be tough to predict the BOJ’s next moves, Kuroda’s focus is the bank’s price target and how to make the most impact.

One analyst present at the briefing said that when Kuroda eased in April last year they knew something big was coming, while this time the governor gave little indication that anything was in the works, instead repeating his optimism on the economy.

Reading Kuroda

In the months preceding last week’s decision, Kuroda repeatedly said the BOJ wouldn’t hesitate to adjust policy should risks threaten its inflation target. At the same time, he gave an upbeat view on prospects for the economy and achieving the bank’s inflation goal, even as April’s sales-tax increase and a tumble in oil prices caused some economists to doubt this picture.

Kuroda stuck to the same message three days before the BOJ’s Oct. 31 announcement.

“Japan’s economy has been on a path that suggests that the 2 percent price stability target will be achieved as expected,” he said in parliament on Oct. 28. “Japan’s economy has continued to recover moderately as a trend.”

Kuroda also said the bank would take appropriate action if adjustments to policy were needed.

The central bank on Oct. 31 cut its estimate for growth in half for the current fiscal year through March and lowered its inflation forecast for the following year to 1.7 percent, based on median projections of the nine board members.

Deflationary Mindset

Explaining the change in policy, Kuroda said at a press conference that the BOJ saw a risk of a delay in changing the “deflationary mindset” in Japan given the impact of April’s sales-tax increase and falling oil prices.

“The BOJ may not be trying to trigger a surprise but their bullish stance on the economy is a bit too much and from the market’s perspective it doesn’t look honest,” said Takuji Okubo, an economist at Japan Macro Advisors in Tokyo. “When a central bank creates doubt over whether it’s accurately assessing the economy, it hurts its credibility and increases volatility in expectations.”

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