BoJ: All eyes on policy decision - BBH

The Bank of Japan meeting concludes overnight and while policy is on hold, it is the last meeting for two board members who have pushed back against elements of Governor Kuroda's unorthodox course.  

Key Quotes

“Kiuchi and Sato will be replaced with Kataoka and Suzuki, who are thought to be supportive of Kuroda, whose term ends next April.  Several points are worth making.”

“First, the power of appointment in Japan (as well as the United States) is how Abe (and Trump) have influence over monetary policy.  Second, the idea that dissents at the central bank are desirable as a product a robust debate that should lead to better policy seems to stand in stark contrast with traditional investor distaste for dissents of central bank decisions.  Recall that when some important BOJ decision such as the starting of QQE was decided by a 5-4 vote, many were aghast.  Third, there may be a difficult balance to strike between group think on the one hand, and the need for strong, decisive signals and actions.”

“While the BOJ is not likely to change policy, some expect it to trim this year's inflation forecast from 1.4%, ostensibly due to the drop in oil prices.  We suspect the BOJ will not cut it sufficiently to be convincing.  Headline and core (excluding fresh food) CPI rose 0.4% in the year through May.  While CPI is more likely to be under 1% this year (and under 0.7%), officials may be reluctant to slash forecast so much in fear of undermining the credibility of its forecasts that inflation will gradually pick up and approach the target in FY2019.”

“Separately, we note that Kiuchi and Sato objected to the 2% inflation target, arguing that it was too high for Japan's circumstances.”