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
Kozo Yamamoto … no reasoning cited. But we’ll see. Maybe he foresees an economic slump in the wake of the sales tx hike due April 1 and more BOJ easing? At least he’s given himself a 10 yen range to play around in