Everything Is Going According to Plan – BOJ

Over the weekend, policymakers met up in Moscow for the G20 meetings and BOJ Governor Haruhiko Kuroda took the opportunity to renew his pledge to maintain the BOJ’s aggressive monetary policy easing. According to him, everything is going according to the BOJ’s plans since it made the bold change to its monetary policy.

If you remember, Kuroda shocked the markets a few months ago after he announced the BOJ’s massive stimulus program designed to put an end to the country’s 15-year deflation problem.

Analysts can tell that Kuroda feels pretty darn confident that the central bank took the right step when it made the aggressive move in April, which tells us that we probably won’t see any adjustments to policy anytime soon.

No objections from other countries

Other G20 members don’t seem to mind the BOJ’s easy monetary policy. Exchange rates and competitive currency devaluations were barely even discussed in the meeting.

In fact, officials even seemed to show support for the policies of their counterparts. For instance, we heard Kuroda praise the Fed’s plans of tapering, saying that such a move would only be appropriate as the U.S. economy recovers. This isn’t what we’re used to hearing.

Past G20 meetings got ugly as countries criticized each other’s policies, triggering talks of a currency war. But judging by how this weekend’s meeting went, it appears as though we can rule out the possibility of a currency war, at least for now.

Abe victory clears path for more easing

The Liberal Democratic Party’s decisive victory in Japan’s recently concluded elections gives Prime Minister Shinzo Abe a strong foothold in the Upper House. As of this writing, Abe’s coalition has secured a majority win. Together with New Komeito, the LDP is slated to bag at least 74 of the 121 seats that are on the line.

This, in turn, should make it easier for Abe to implement and gain support for his “national growth strategy,” which includes his hyper-easy monetary policy.

The big question: when?

While the events that unfolded over the weekend tell us that BOJ plans to stick to its guns, it doesn’t necessarily mean that the central bank will pull the trigger and ease monetary policy every chance it gets.

On the contrary, the BOJ’s recent statements seem to suggest that it only plans to do so if the need arises.

Based on its last two monetary policy statements, the central bank doesn’t see much of a need for further easing yet. In fact, just last month, it sounded downright optimistic, claiming that the economy is starting to recover and that Japan is finally feeling the effects of the central bank’s giant stimulus program.

The way I see it, the BOJ has adopted the ever-so-famous wait-and-see approach, which means that just like the Fed, it will probably base its future decisions on the outcome of economic reports. In other words, the BOJ might not reach into its bag of tricks unless Japan’s recovery loses steam.