FXStreet (Bali) – Makoto Yamashita, CMA, Strategist at Deutsche Bank, notes that the BoJ is unlikely to ease further in October.
Key Quotes
“The question is whether the BoJ will ease further, but we see little likelihood of this. The BoJ will probably only ease further in response to events that would make the outlook for 2% inflation impossible. Inflation expectations could fall due to a decline in oil prices like last year, but oil prices have not fallen to the extent they did in 2014.”
“In addition, regarding the output gap, BoJ Governor Haruhiko Kuroda at the Upper House Financial Affairs Committee on the 10th said “There is a good chance that GDP will be positive in Jul-Sep”, indicating that he does not anticipate a decline in the underlying trend in inflation due to economic deterioration.”
“If the BoJ does ease further we expect it would focus on qualitative measures such as increasing ETF purchases and extending the duration of JGB purchases. In that case, we expect the superlong sector would outperform. Kuroda indicated on the 10th that the Bank was not considering reducing or abolishing the IOER rate. A rate cut, including negative rates, is unlikely.”
“BoJ Board Member Sayuri Shirai’s panel discussion remarks on the 8th gave numerous reasons for maintaining the IOER rate, but we see one compelling explanation for why the Bank cannot use negative rates. Excluding the BoJ, the banks’ surplus deposits have enabled the smooth absorption of JGBs equaling over 200% of GDP. The probability that negative rates would destabilize the JGB market therefore makes such a policy unlikely from the perspective of managing national risk.”
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