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10 Apr 2015
BoJ to keep current policy on hold – BAML
FXStreet (Barcelona) - Masayuki Kichikawa, Japan Economist at BofA-Merrill Lynch, expects that the BoJ will maintain its current pace of asset purchases, but the outlook for monetary policy in Japan is becoming data dependent.
Key Quotes
“the BoJ still faces a challenge in maintaining credibility among market participants for its 2% inflation target with core inflation either at zero or slightly negative; however, much this is due mainly to the one-off impact of cheaper oil.”
“For now, we expect the BoJ to keep current policy on hold, while maintaining a bias toward further easing if the economy of underlying inflation look to be undershooting (or the pace of improvement disappointing).”
“We see the following two points as likely determining whether the BoJ will ease further. Although Kuroda indicated optimism on this occasion, the first point is overseas economic risk, as well as the scale of the impact on the Japanese economy (particularly production) and its duration.”
“The second determinant is the trend in wage inflation and service prices. Though Japan’s core-core inflation (ex energy and foods, equivalent to core inflation in the US and Europe) remains firmly in positive territory, the rate is only around 0.3- 0.4% yoy (excluding the impact of the consumption tax hike). Even if the disinflationary impact of cheaper oil eases, to reach the 2% inflation target needs core-core CPI to trend higher.”
“Conversely, if core-core CPI does improve, it would prove that the impact of cheaper oil on inflation expectations (the second-round effect) is small, which should enhance the market credibility of the inflation target.”
Key Quotes
“the BoJ still faces a challenge in maintaining credibility among market participants for its 2% inflation target with core inflation either at zero or slightly negative; however, much this is due mainly to the one-off impact of cheaper oil.”
“For now, we expect the BoJ to keep current policy on hold, while maintaining a bias toward further easing if the economy of underlying inflation look to be undershooting (or the pace of improvement disappointing).”
“We see the following two points as likely determining whether the BoJ will ease further. Although Kuroda indicated optimism on this occasion, the first point is overseas economic risk, as well as the scale of the impact on the Japanese economy (particularly production) and its duration.”
“The second determinant is the trend in wage inflation and service prices. Though Japan’s core-core inflation (ex energy and foods, equivalent to core inflation in the US and Europe) remains firmly in positive territory, the rate is only around 0.3- 0.4% yoy (excluding the impact of the consumption tax hike). Even if the disinflationary impact of cheaper oil eases, to reach the 2% inflation target needs core-core CPI to trend higher.”
“Conversely, if core-core CPI does improve, it would prove that the impact of cheaper oil on inflation expectations (the second-round effect) is small, which should enhance the market credibility of the inflation target.”