BOJ Decision-Day Guide: Focus on Kuroda's Long-Term Outlook

(Bloomberg) -- With Governor Haruhiko Kuroda set to lead the Bank of Japan for another five years, much of the focus on Friday will be on what he says about the future of policy, and any comments he makes about exit.

All economists surveyed expect the central bank will keep asset purchases and yield-curve control settings unchanged, at what will be the last meeting for the two current deputy governors.

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The number of BOJ watchers forecasting a policy shift in 2018 had been declining, even before Kuroda’s comments this week about how unlikely any exit would be in the fiscal year starting in April. The stronger yen and stalled inflation prompted JPMorgan Chase, Barclays and Morgan Stanley MUFG to push back their projections of when the central bank might tighten policy.

The BOJ will release its policy statement in the early afternoon in Tokyo, followed by a news conference by Kuroda from 3:30 p.m.

Key Points

What to watch forWhy
  • Clues on exit strategy and timing
Kuroda recently said that the BOJ will mull an exit around fiscal 2019 as that’s when the bank expects to hit its inflation target. He didn’t say that this also meant the central bank would start exiting then. Investors will be looking for more clarity on this.  
  • Views on a stronger yen
The yen touched the strongest level since November 2016 last week. Investors would take any sign of concern about the yen from Kuroda as an indication of cautiousness toward policy normalization.

Market consensus has shifted to no expectation of tightening this year. Less than a third of economists expect the bank to start unwinding stimulus this year, down from about half in Bloomberg’s last poll in January.

Prime Minister Shinzo Abe nominated Masayoshi Amamiya, BOJ’s executive director, and Masazumi Wakatabe, a prominent reflationist, to take the two deputy governor posts from March 20. Kuroda, whose new term will start on April 9, may be asked about the appointments.

Policy Recap

Key elements of the BOJ’s yield-curve control policy:

  • Negative interest rate of minus 0.1 percent charged on some of the reserves financial institutions keep at the BOJ.
  • Yield target of about 0 percent for 10-year Japanese government bonds.
  • Increase JGB holdings by about 80 trillion yen ($755 billion) a year.
  • Increase holdings of exchange-traded funds by 6 trillion yen a year and Japanese real-estate investment trusts by 90 billion yen annually.

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