These Minutes are quite stale given the (minor) policy action the BOJ took at its December meeting. The Minutes of that meeting should be much more interesting given there were 3 dissents to even the negligible policy action taken. They’re due in January.
Goldman:We see $/JPY upside as highly actionable on a three month horizon. As we laid out, the median forecast of policy board members of 0.7 percent annual average inflation in FY2015 required a herculean pick-up in sequential inflation even before recent events in Asia. Governor Kuroda has been adept at surprising markets since the start of his tenure and, though our official call is for the second October meeting, we cannot rule out action sooner, especially given the move in the QSS survey of inflation expectations. Our 12-month forecast of 130 bakes in additional easing from the BoJ and we see this level as a good target should another material round of stimulus materialize.
Barclays: While neither we nor the markets expect policy changes at this meeting, Governor Kuroda’s press conference will be scrutinized. On August 27, BoJ Governor Kuroda reaffirmed his confidence that “the economy and prices are trending in line with our expectations, and we believe the 2% price target can be reached with the current QQE” – ie, without additional easing. We are maintaining our view of no further easing until next April, but any changes in his assessment of the recent development or any hints on policy reactions will be watched closely, particularly as the yen strength and renewed drop in oil prices may weigh on the inflation outlook. In terms of economic assessment, we look for the BoJ to keep its overall assessment of the domestic economy largely unchanged, but their views on overseas economies and exports are likely to be downgraded given recent developments.
BofA Merrill: We maintain our main scenario that the BoJ would stay on hold. We believe the Japan economy will likely recover July-September onwards as the historically high corporate profits feed through capex and wage/consumption, the recovery of the US economy absorbs the impact of slower Chinese growth, and inflation (excluding energy) continues to improve.
As the BoJ continues to widen the gap between Japan’s haves and have-nots with its JGB monetization frenzy and multi-trillion yen foray into Japanese equity markets, and with the now unfabricated wage growth data from 2014 suggesting Abe’s “strategy” whereby wage growth begets economic growth which in turn begets confidence either isn’t working very well or never existed in the first place, the chairman of Nippon Life is joining a bevy of other folks in Japan who apparently still live in the real world and are skeptical of the sheer insanity that passes for monetary policy in Tokyo. As Reuters reports, Kunie Okamoto thinks further easing is foolhardy as the central bank already has a monopoly on the market:
It is… unwise to assume that Japanese yields will not spike simply because domestic investors hold more than 90 percent of government debt, Kunie Okamoto said in an interview with Reuters.
“Additional monetary easing is not desirable,” Okamoto said on Friday.
“The BOJ is already buying around 90 percent of bonds in the market. It is not good for this to be sustained.”
Nippon Life Insurance and other life insurers are major buyers of long-term government debt because they need a steady income stream to offset their liabilities, so their views on the bond market carry weight.
The March jobs data was a disappointment. The question is its significance. From a macro point of view, we would not place much emphasis on any one high frequency data point. From a technical point of view, it may encourage a continued consolidation/correction of the dollar’s Q1 gains, not only against the major currencies but also against many emerging market currencies.
The US dollar’s strength in Q1 was not matched be the economic performance. The weakness in Q1 already prompted the Federal Reserve to lower its growth projections, though Yellen has noted that even with the downgrade, it expects above trend growth for the year. The poor employment report is unlikely to change this assessment. The Fed’s Labor Market Conditions Index has already picked up a moderation in the labor market in Q1, where the monthly average has increased by 4.4 compared with 6.5 in Q4 14. The weekly initial jobless claims and continuing claims show underlying strength. The JOLTS report is expected to confirm this. Sectors like construction and leisure/hospitality, which are the most sensitive to weather were exceptionally weak in March.
We are reluctant to read too much into the weakness in Q1 economic activity. Over the last five years, there has been a clear pattern of weakness in the first part of the year. Consider than growth in Q1 has averaged 0.6% (quarterly annualized pace) compared with almost 2.9% for all the other quarters. In three of the five years, growth in Q1 was the slowest for the year (2010, 2011, 2014) and in one year it was the second weakest (2013).
Fed officials have argued that the headwinds in Q1 will prove transitory. This seems to be the most likely scenario. That said, the implications of the jobs report, especially the 0.1% fall in the average work week, suggests the quarter ended on a weak note. This would seem to have already been largely discounted by the market which means that March data may have less impact on prices. There will be headline risk from the minutes from last month’s FOMC meeting, but in terms of policy insight we would put more emphasis on the speeches by the Fed’s leadership in the coming days. NY Fed President Dudley speaks twice in the week ahead, after both Yellen and Fischer have given several speeches since the FOMC meeting.
Keeps monetary policy steady, pledges to increase monetary base at annual pace of 80 trln yen
Decision was made by 8-1 vote
Kiuchi votes against keeping policy steady, saying that policy before the October 31 easing was appropriate … also proposed making 2 pct inflation target a medium- to long-term goal, which was turned down by 8-1 vote
The BOJ raises its economic assessment
Raises assessment on output
Raises assessment on exports
Says the Japanese economy continues to recover moderately as a trend with effect of sales tax hike waning as a whole
Says that exports are showing signs of pickup, output seems to be bottoming out
Business sentiment generally favourable although some cautiousness has been observed
Capex has been on a moderate rising trend as corporate profits improve
Private consumption remains resilient as a trend with effect of sales tax hike waning as a whole