What BOJ Watchers Say About Tuesday's Monetary Policy Tweaks

(Bloomberg) -- The Bank of Japan revamped its massive monetary stimulus program on Tuesday.

Below is what BOJ watchers had to say about the changes.

Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities Inc. in Tokyo:

  • The BOJ has taken into account both the side effects of its policy and the opinions of those who want further easing.
  • "With scarce space to change monetary policy, they’ve managed to create a clever compromise."
  • The bank has essentially said it won’t raise rates until after the aftermath of the 2019 sales tax increase to dispel opposition from Deputy Governor Masazumi Wakatabe and others on the board.
  • "In that sense an exit has become further away."

Harumi Taguchi, principal economist at IHS Global Insight Inc. in Tokyo:

  • The BOJ hasn’t changed its overall framework aimed at tackling low inflation.
  • "They’ve mainly changed policy in order to reduce the seeds of negativity that arise from the framework.”
  • Considering overseas effects on long-term yields, there is a greater possibility they’ll need to conduct "more flexible unlimited bond offers" to keep yields down.

Yuki Masujima, senior economist, Bloomberg Economics in Tokyo:

  • More flexible bond purchasing and a shifting of ETF purchases to the wider Topix index make the easing program more sustainable and improve the predictability of policy changes.
  • An incremental rise in rates is now unlikely to happen by the end of the year, given the latest forward guidance.
  • "One concern is that more flexible bond purchase operations may fuel market speculation, thus increasing volatility in yields."
  • The board’s downgraded inflation forecasts are now more realistic.

Masamichi Adachi, a Tokyo-based senior economist at JPMorgan Chase & Co.:

  • "It’s irrational to argue that they’re tightening when the inflation outlook is falling rather than rising."
  • "As long as you believe that the BOJ is still trying to achieve 2 percent inflation as soon as possible, the logical thinking is that this move is easing, not tightening."
  • Still, because the BOJ effectively raised the 10-year yield a little bit, it’s hard to argue the shift was easing, and that’s why they strengthened their commitment to stimulus with forward guidance.
  • "In short it’s very difficult for me to argue they’re going to raise this 10-year yield target before 2020."

Prakash Sakpal, Asia economist at ING Groep NV in Singapore:

  • As expected, the BOJ didn’t abandon its inflation or asset-buying targets, despite both having "grossly underperformed" the 2 percent and 80 trillion yen goals.
  • The key question is: "Has the central bank conceded defeat on the objective of raising inflation to the 2% target level?"
  • Downgrading its inflation forecasts suggests it has while the bank’s insistence that it has strengthened its commitment suggests otherwise.
  • "But for now, absent a significant departure from an ultra-easy monetary policy stance, the 10-year JGB yield giving back its recent spike seems to be a reasonable expectation."

Hiroaki Muto, chief economist at the Tokai Tokyo Research Center:

  • The move to halve the commercial bank deposits subject to negative rates gives the overall decision a "slightly hawkish" feel.
  • That decision shows the BOJ’s board is no longer convinced of the effectiveness of negative rates.

Mark Williams, chief Asia economist, and Marcel Thieliant, senior Japan economist at Capital Economics:

  • The key message from the BOJ is that the main policy rates will remain at very low levels for the "forseeable future."
  • Allowing 10-year JGB yields to move in a band around zero that is twice the original size was perhaps the most significant tweak.
  • Against a backdrop of lowered inflation forecasts "any decision to raise interest rates would have been perverse."

Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group:

  • Doesn’t see a greater flexibility in 10-year JGB yields as policy change.
  • "Forward guidance strengthens monetary easing because it dispelled rate hike expectations completely. That’s powerful.”
  • Don’t see a rate increase through 2020.

Masaki Kuwahara, senior economist at Nomura Securities Co. in Tokyo:

  • The BOJ has struck a balance by providing forward guidance at the same time as allowing greater movements in the 10-year yield that could push up the interest rate.
  • "I don’t think we’re at the stage where we can see a path to normalization."

Shigeto Nagai, Head of Japan Economics at Oxford Economics in Tokyo:

  • "The BOJ is now more engaged and prepared to fight a long-run battle against deflation or disinflation."
  • "They tried their best to avoid the perception of tapering or normalization by introducing the forward guidance."
  • "The guidance is vague but gives some assurance that the current easing measures will continued at least into fiscal 2020, after checking the side effects of the planned consumption tax hike."

Kit Juckes, a London-based strategist at Societe Generale SA:

  • "It seems to me this is a ‘tour de force’: allowing a wider range for bond yields is probably a necessary precondition for the BOJ to remove itself from the bond and equity markets, in which sense this is a (baby) step towards normalization, and one that hasn’t even caused a slight wobble in other markets."

To contact Bloomberg News staff for this story: Paul Jackson in Tokyo at pjackson53@bloomberg.net

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With assistance from Editorial Board