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26 Feb 2015
Kuroda maintains an upbeat tone regarding FX and monetary policy – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, argues that the only plausible explanation to Kuroda maintaining a positive stance towards the economy and acknowledging improving corporate profits and investment in today’s review to the Diet, would be to support inflation expectations.
Key Quotes
“ There is one possible explanation of why Kuroda’s positive outlook on the economy appears to be at odds with the sluggish reality of economic activity in Japan. Kuroda has previously promised to “drastically convert the deflationary mindset” and his upbeat assessment may be a tool aimed at supporting inflation expectations.”
“In terms of policy action, the Bank’s efforts to achieve a positive inflation rate are huge.”
“On Oct 31 last year the BoJ surprised the market by announcing a significant increase in its QQE plan. The timing of this announcement was partly influenced by falling oil prices and the associated fall in the projected headline inflation rate.”
“The Bank is currently vacuuming up assets with an aim of increasing the monetary base by a massive Y80 trn a year and has pledged to continue with its QQE policy “as long as is necessary” in its aim to push CPI inflation to its 2% target.”
“The Bank’s policy has put downward pressure on the entire yield curve through this policy but, if firms were to belief that prices were likely to fall, low nominal interest rates would not necessarily be sufficient to entice them to borrow and invest. Under deflation it would be rational for firms and consumers to hoard cash and deposits rather than spend and invest.”
“Inflation is necessary to counter fears of a rising debt burden and so to improve the transition mechanism of monetary policy."
“Further signs of weakness in tomorrow’s Japan January CPI report is likely to be a source of concern for the BoJ.”
Key Quotes
“ There is one possible explanation of why Kuroda’s positive outlook on the economy appears to be at odds with the sluggish reality of economic activity in Japan. Kuroda has previously promised to “drastically convert the deflationary mindset” and his upbeat assessment may be a tool aimed at supporting inflation expectations.”
“In terms of policy action, the Bank’s efforts to achieve a positive inflation rate are huge.”
“On Oct 31 last year the BoJ surprised the market by announcing a significant increase in its QQE plan. The timing of this announcement was partly influenced by falling oil prices and the associated fall in the projected headline inflation rate.”
“The Bank is currently vacuuming up assets with an aim of increasing the monetary base by a massive Y80 trn a year and has pledged to continue with its QQE policy “as long as is necessary” in its aim to push CPI inflation to its 2% target.”
“The Bank’s policy has put downward pressure on the entire yield curve through this policy but, if firms were to belief that prices were likely to fall, low nominal interest rates would not necessarily be sufficient to entice them to borrow and invest. Under deflation it would be rational for firms and consumers to hoard cash and deposits rather than spend and invest.”
“Inflation is necessary to counter fears of a rising debt burden and so to improve the transition mechanism of monetary policy."
“Further signs of weakness in tomorrow’s Japan January CPI report is likely to be a source of concern for the BoJ.”