BoJ: "Not so fast" - UOB
Analysts at UOB Group explained that the Bank of Japan (BOJ) decided to keep policy unchanged for the 11th consecutive meeting on 23 January 2018.
Key Quotes:
"And the decision was again not unanimous with board policy member, Goshi Kataoka, the sole dissenter for the 4th time in a row. The BOJ retained its upbeat economic outlook and its optimistic inflation outlook that Japan continues to head towards the 2% price growth target (“likely be around fiscal 2019”) but there was no material revision to either GDP or inflation forecasts. Even as BOJ chooses to maintain status quo, uncertainty will continue to cloak its monetary policy outlook in 1Q 2018 as the specter of “BOJ normalization” has crept into market psyche. It will only be dispelled after the announcement of the appointment of the next BOJ Governor, and thereafter market’s BOJ policy expectations will revert back to “expansionary till 2% is met”.
In the post-MPM press conference, BOJ Governor Kuroda mounted a strong defence of BOJ’s accommodative monetary policy stance, saying Japan needs to maintain strong monetary easing while it is still some distance to meeting the inflation target, and reiterated importantly that the BOJ is not in the situation to consider exit from QQE. He further emphasized that there is no need to change the 2% price target, no need to change the joint statement between the government and the central bank and importantly, no need to adjust yield curve control because of rise in inflation expectations. Kuroda reiterated the BOJ has no difficulty in conducting its JGB market operations and downplayed its significance, explaining that the day-to-day JGB buying operations do not indicate future course of monetary policy and focus of monetary policy is level of rates, not amount of JGB bought."
"The US bond market prices strengthened as yields declined slightly across the curve on Tuesday (23 Jan) and the move was attributed to BOJ Governor Kuroda tried to dispel speculation that the BOJ was close to normalizing monetary policy. The message was “Not so fast.”"