BoJ: Increased interest about the exit strategy - BBH

The Bank of Japan meets this week and there seems to be increased interest in the Diet and media about the exit strategy according to the analysts at BBH.  

Key Quotes

“The message from the Bank of Japan is patience.  It is too early to have a meaningful discussion.  Although some measures deflation has abated, the Q1 GDP deflator, which some economists argue is a more accurate measure of prices, was minus 0.8%.”

“The fact that the central bank's balance sheet is growing by less than the JPY80 trillion target ought not be confused with tapering.  It is a modification to QQE.  The shift to targeting the 10-year yield necessitated buying fewer government bonds.  Ideas that the BOJ would revise up its growth forecasts were dashed last week when the estimate for Q1 GDP was halved to 0.3%.  Nevertheless, the stronger foreign impulses and the increasing investment may be bolstering the official confidence of that economic growth is solid a little above trend, and the output gap gradually is being closed.”

“Given that monetary policy is still open-throttle easing, then it follows that officials would prefer the movement of the currency not run in the opposite direction.  Our general impression remains that Japanese businesses and officials are content with JPY110-JPY120. However, barring a change in rhetoric or practices, the near-term direction seems broadly driven by the change in US yields.”