Abe Resignation Unlikely to Shift BOJ Path Much, Economists Say

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Japanese equities and the yen shook Friday on news that Prime Minister Shinzo Abe is resigning, but economists said his departure is unlikely to trigger changes in Bank of Japan policy.

One reason is that BOJ Governor Haruhiko Kuroda, the architect of the bank’s massive easing policy, isn’t likely to follow Abe in stepping down before his term is up, in April 2023. The pandemic has also made it even more difficult for the bank to contemplate unwinding its bond purchases or lifting rates that have been in negative territory for years.

“There’ll be no impact on monetary policy,”’ said economist Masamichi Adachi at UBS Securities in Tokyo. “If it did change, it would make you reassess the relationship between the BOJ and the government,” he said, stressing that the bank is likely to protect its independence.

Abe’s signature program of “Abenomics” delivered mixed results, but the biggest achievements were made as a result of changes in BOJ policy spearheaded by Governor Kuroda. The BOJ head has no reason to resign now, according to UBS’s Adachi.

The pandemic has also tied the hands of policy makers in government and at the BOJ, according to economist Masaki Kuwahara at Nomura Securities Co., who said authorities now have little choice but to maintain the current stimulus.

“For now, anyone would want to prioritize a recovery from the Covid-19 downturn,” said Kuwahara. “For the BOJ, if policy suddenly swings toward normalization there’ll be market impact.”

Following the surprise reports of Abe’s resignation, the benchmark Topix index at one point tumbled 1.6%, and the yen strengthened from around 107 to the dollar to 106 before markets stabilized.

In tandem with massive spending from the government, the BOJ has also stepped in with more asset purchases and loans support. Any Abe successor is unlikely to change that accommodative path, said Shunsuke Kobayashi, chief economist at Mizuho Securities Co.

“With the economy doing this badly, fiscal and monetary policy will remain at full throttle whoever follows Abe,” he said.

©2020 Bloomberg L.P.

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