25 Nov 2015
JPY broadly unchanged as BOJ minutes reveal concerns - MUFG
FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, the minutes from the last BOJ monetary policy meeting on 30th October revealed increased concerns over downside risks to the economy.
Key Quotes
“Like the ECB and the BOE the focus of the BOJ’s concerns is on slowing global growth with “many members” believing that particular attention needed to be given to the “slowdown in emerging markets”. “Many” of the members also stressed that the bank would act “without hesitation” if the downside risks to economic growth and inflation were to materialise.”
“Of course, one could argue that the downside risks have materialised to a degree but instead of acting the BOJ decided to extend the timeframe for achieving the 2% inflation target and that this was the most telling aspect of the meeting on 30th October. Still, the minutes do convey a sense that while the option in October was to extend the timeframe, any further deviation in projections due to downside risks would have to be followed by additional monetary action.”
“For now though the BOJ was holding on to the view that the “underlying inflation trend had steadily been improving” and that the extension in the timeframe of achieving the target was more due to falling crude oil prices. Any further refusal to implement policy easing though would quickly lead markets to conclude that the BOJ was of the view that QQE had reached its limit and that there were no further monetary policy options available.”
“That is perhaps where the government needs to come in. QE is always to some degree the buying of time and action from the government to help lift growth looks to be the next focus. Yesterday Economy Minister Amari released a draft of measures to help achieve PM Abe’s target of increasing nominal GDP by 20% to JPY 600 trillion within five years.”
“The summary of details very much focused on trying to lift wages with an increase in the minimum wage part of the plan. The government also promised to cut the corporate tax rate by more than planned. PM Abe has also ordered a fiscal stimulus program but little details are known at this stage.”
“The minutes from the BOJ have failed to move the yen in part due to the details offering nothing new to what Governor Kuroda stated in the press conference following the meeting. Downside risks exist but underlying inflation is moving higher and hence no action is required. The risks of further action though are clear. For now, USD/JPY will take direction from US developments ahead of the FOMC meeting on 16th December.”
Key Quotes
“Like the ECB and the BOE the focus of the BOJ’s concerns is on slowing global growth with “many members” believing that particular attention needed to be given to the “slowdown in emerging markets”. “Many” of the members also stressed that the bank would act “without hesitation” if the downside risks to economic growth and inflation were to materialise.”
“Of course, one could argue that the downside risks have materialised to a degree but instead of acting the BOJ decided to extend the timeframe for achieving the 2% inflation target and that this was the most telling aspect of the meeting on 30th October. Still, the minutes do convey a sense that while the option in October was to extend the timeframe, any further deviation in projections due to downside risks would have to be followed by additional monetary action.”
“For now though the BOJ was holding on to the view that the “underlying inflation trend had steadily been improving” and that the extension in the timeframe of achieving the target was more due to falling crude oil prices. Any further refusal to implement policy easing though would quickly lead markets to conclude that the BOJ was of the view that QQE had reached its limit and that there were no further monetary policy options available.”
“That is perhaps where the government needs to come in. QE is always to some degree the buying of time and action from the government to help lift growth looks to be the next focus. Yesterday Economy Minister Amari released a draft of measures to help achieve PM Abe’s target of increasing nominal GDP by 20% to JPY 600 trillion within five years.”
“The summary of details very much focused on trying to lift wages with an increase in the minimum wage part of the plan. The government also promised to cut the corporate tax rate by more than planned. PM Abe has also ordered a fiscal stimulus program but little details are known at this stage.”
“The minutes from the BOJ have failed to move the yen in part due to the details offering nothing new to what Governor Kuroda stated in the press conference following the meeting. Downside risks exist but underlying inflation is moving higher and hence no action is required. The risks of further action though are clear. For now, USD/JPY will take direction from US developments ahead of the FOMC meeting on 16th December.”