16 Mar 2016
JPY: Governor Kuroda signals rates likely to become more negative – MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the yen has weakened modestly in the Asian trading session following dovish comments overnight from BoJ Governor Kuroda when speaking in front of parliament.
Key Quotes
“Governor Kuroda stated that there is a chance that the BoJ will cut rates even deeper into negative territory and that theoretically there is still quite some room to lower rates further. More specifically he stated that there is room theoretically to lower the rate to -0.5%. It fits with comments from Governor Kuroda as well that the BoJ is looking at the experience of negative rates in Europe although he did state that the BoJ is not aiming specifically at European rates and that the appropriate rate in Japan will take into consideration the Japanese economy.
Overall, the comments clearly highlight that the BoJ does not want to signal yet that rates are close to bottoming which stands in contrast to the recent policy signal from ECB President Draghi. The lagged introduction of negative rates in Japan still leaves more scope to lower rates further if required. Governor Kuroda remains confident that negative rates will have a positive impact on Japan’s economy which will become more evident with a lag.
He also remains of the view that other things being equal, further monetary easing should weaken the yen although he cautiously stated that the BoJ was not targeting a weaker yen through QQE with a negative rate. The BoJ is expected to downgrade their economic and inflation outlook at their next meeting on the 28th April which could provide justification for further monetary easing.
Disappointing wage negotiations for this fiscal year are likely to reinforce the case for further monetary easing as well. The weak performance of consumer spending since the sales tax was raised in April 2014 which Governor Kuroda acknowledged overnight is increasing speculation that the government will potentially delay the next planned sales tax hike beyond April 2017. Joseph Stiglitz spoke overnight at a panel discussion with Prime Minister Abe and senior policymakers and expressed his view that now is not the time for another sales tax hike.”
Key Quotes
“Governor Kuroda stated that there is a chance that the BoJ will cut rates even deeper into negative territory and that theoretically there is still quite some room to lower rates further. More specifically he stated that there is room theoretically to lower the rate to -0.5%. It fits with comments from Governor Kuroda as well that the BoJ is looking at the experience of negative rates in Europe although he did state that the BoJ is not aiming specifically at European rates and that the appropriate rate in Japan will take into consideration the Japanese economy.
Overall, the comments clearly highlight that the BoJ does not want to signal yet that rates are close to bottoming which stands in contrast to the recent policy signal from ECB President Draghi. The lagged introduction of negative rates in Japan still leaves more scope to lower rates further if required. Governor Kuroda remains confident that negative rates will have a positive impact on Japan’s economy which will become more evident with a lag.
He also remains of the view that other things being equal, further monetary easing should weaken the yen although he cautiously stated that the BoJ was not targeting a weaker yen through QQE with a negative rate. The BoJ is expected to downgrade their economic and inflation outlook at their next meeting on the 28th April which could provide justification for further monetary easing.
Disappointing wage negotiations for this fiscal year are likely to reinforce the case for further monetary easing as well. The weak performance of consumer spending since the sales tax was raised in April 2014 which Governor Kuroda acknowledged overnight is increasing speculation that the government will potentially delay the next planned sales tax hike beyond April 2017. Joseph Stiglitz spoke overnight at a panel discussion with Prime Minister Abe and senior policymakers and expressed his view that now is not the time for another sales tax hike.”