Japan: Kuroda, with some help from the BBC, dampens expectations - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the Japan’s equity markets responded to the surge of the yen as you would expect with the Topix index closing nearly 1.0% lower in response to the BBC airing an interview yesterday conducted on 17th June with Governor Kuroda ruling out any move toward ‘helicopter money’.

Key Quotes

“Having read the exact words that were published, it is certainly evident that his belief in mid-June was very strong.

However, firstly, it is not clear why these comments were released with such a long delay but if the release yesterday was agreed by the BOJ then we can safely conclude this was a deliberate attempt to dampen expectations of any big policy steps being taken at next week’s meeting (28th-29th). We continue to expect the BoJ to disappoint even the newly adjusted lower expectations that prevail today with a decision to leave its monetary stance unchanged. Even if we are wrong on that, any action will be modest and will also likely disappoint the markets.

Secondly though, the BBC interview was telling in that Governor Kuroda did also state that “at this stage we should not abandon” the institutional framework of having a division between government and fiscal policy and the central bank and monetary policy. We’ve put in bold the important words here and while we do not expect any move toward an official policy stance of ‘helicopter money’ any time soon, we can also see evidence that argues we should not dismiss the idea of ‘helicopter money’ as being a key ingredient of the ultimate end game in Japan in the long-run.”