Bank of Japan: Ultra-loose policy measures to remain in place - Danske Bank

Analysts from Danske Bank expect the Bank of Japan to maintain its ‘QQE with yield curve control’ policy at next week’s monetary policy meeting.

Key Quotes: 

“We expect the Bank of Japan (BoJ) to maintain its ‘QQE with yield curve control’ policy at its monetary policy meeting ending on 31 October. This is also our main scenario on our 12M forecast horizon. It is widely expected that the BoJ will keep its ultra-loose monetary policy unchanged and the announcement should not have a significant impact on price actions.”

“After PM Abe’s Liberal Democrats regained the majority of seats (284/465) in the Japanese election for the lower house on 22 October, Abe has a renewed mandate for his economic policy and is free to reappoint governor Kuroda for another term next year. With July’s exit of BoJ board members Mr. Sato and Mr. Kiuchi, the hawkish camp is effectively empty. At the September meeting, only new member Mr. Kataoka opposed the policy decisions, but that was because he considers them too hawkish, not too dovish. Thus, there currently does not seem to be anyone left to oppose the current BoJ course.”

“The Japanese economy is currently going through a solid recovery. We saw some momentum in private consumption earlier this year but overall the upswing is driven by the global economic recovery and Japanese exporters enjoying tailwind from the weakening of the JPY. This is also the picture we see in Q3, where exports have generally been strong. CPI inflation has increased throughout 2017, but this has mainly been the result of rising energy prices. Hence, the underlying price pressure in Japan remains very low, despite solid growth and a closed and increasing output gap, and the BoJ’s 2% inflation target is currently nowhere within reach.”