RBS Sees Japan Investors' View on BOJ at Odds With U.K. Peers

  • `Japanese investors have a more sanguine outlook:' Mohi-uddin
  • RBS expects the BOJ to keep current record stimulus Friday

Royal Bank of Scotland Group Plc’s Japanese clients expect the nation’s central bank to keep its record stimulus unchanged this week, contrasting with the views of most investors in the U.K., according to Mansoor Mohi-uddin, the bank’s senior markets strategist.

None of the life insurance firms, asset managers and banks Mohi-uddin met last week in Tokyo expected the Bank of Japan to expand its unprecedented monetary stimulus when it decides on policy Friday, the strategist said Monday. Hedge fund and other asset managers he met in London the week of Sept. 28 were more bearish on the yen and expect policy makers to ease this week to stoke inflation and growth, he said.

Predicting the central bank’s decision on Oct. 30 is becoming increasingly difficult. Indicators are due for retail sales and industrial production, along with a meeting of policy makers from U.S. Federal Reserve that will influence markets around the world. The latest reading of Japan’s consumer price index won’t be released until the morning of the BOJ meeting. China’s decelerating economy also means that Japan faces greater headwinds as external demand slows.

‘Sanguine Outlook’

“Japanese investors have a more sanguine outlook on Japan’s economy while foreign investors are concerned the economy will be more impacted by weaker global growth and China’s slowdown,” Mohi-uddin, who is based in Singapore, said in an interview. “Thus, Japanese investors don’t expect the BOJ to ease on Friday, while foreign investors strongly expect the central bank to move.”

Forty-two percent of economists surveyed by Bloomberg from Sept. 29 to Oct. 2 forecast the BOJ will bolster stimulus at the end of this month.

RBS expects the central bank to keep BOJ Governor Haruhiko Kuroda to keep his pledge to expand the monetary base at an annual pace of 80 trillion yen ($660 billion) this week, which will fuel a rally in the yen to between 115 yen and 120 yen versus the greenback, Mohi-uddin said. Japan’s currency will end the year at around 120 if the Fed raises interest rates in December, he said.

Yen Outlook

Analysts this month raised their year-end forecast of the yen to 122 per dollar, from 125 in September, according to median estimates.

The yen strengthened 0.3 percent versus the dollar to 121.16 at 12:32 p.m. in Tokyo, halting a seven-day decline of about 2 percent. The currency’s drop accelerated after European Central Bank President Mario Draghi said on Oct. 22 officials are considering further monetary stimulus to boost a flagging economy, fueling speculation that the BOJ would be under pressure to ease.

The views of RBS’s clients in Tokyo on Japan’s monetary policy remained unchanged after Draghi’s comments, Mohi-uddin said. According to the investors, the nation’s economic data aren’t “universally weak” and Kuroda isn’t currently facing any political pressure to ease, he said.

Japan’s Finance Minister Taro Aso said Friday that monetary policy alone isn’t enough for inflation to reach the BOJ’s target, with oil prices falling. The monetary authority may also find it difficult to keep buying Japanese government debt at its current pace by the end of 2017, Mohi-uddin said.

Hedge funds and other large speculators reduced bets that the yen will weaken against the dollar to the least since October 2012, data from the Commodity Futures Trading Commission showed. Net bearish bets on the yen fell to to 3,639 contracts in the week through Oct. 20, from 13,832 the previous week, according to the Washington-based firm.

Before it's here, it's on the Bloomberg Terminal.