The Bank of Japan’s (BOJ) monetary policy meeting and announcement is this week’s most anticipated event. Did Kuroda and his team live up to the market’s hyped expectations?
ICYMI, here are five things you need to know from the event:
1. The BOJ caved in…sort of.
Shinzo Abe’s plans for another economic stimulus package increased the pressure for Kuroda and his team to match the PM’s campaign by upping their easing game. In the days leading up to today’s decision, the Finance and Economy Ministers’ urges to “cooperate” with the government, Abe announcing the size of his next program (28T JPY), and the market bees’ buzzes for a significant increase in stimulus effectively backed the BOJ into a corner.
The BOJ caved in… sort of. Though it had tons of weapons to choose from, it only ended up ticking a couple of boxes:
The central bank doubled the sizes of its ETF purchases and the dollar-lending program designed to help Japanese firms with their overseas transactions. Not only that, but it also created a program that would allow the central bank to lend Japanese Government Securities (JGS) to financial institutions, which will then be used as collateral for the BOJ’s dollar-lending program. Guess they’re really worried about overseas activity for Japan’s firms, huh?
P.S.: It’s not really named “JGS-as collateral program.” The BOJ probably has another name for it.
2. Reasons for the policy changes
Since they can’t put “because the government told us so,” Kuroda and his gang cited uncertainty over the Brexit vote, slowdown of growth in the emerging economies (*cough* China *cough*), and increased volatility in the global financial markets as its reasons for increasing its stimulus this month.
Okay, maybe the BOJ did mean it when it listed down the economic slowdown part. After all, the central bank had already expressed concerns over the issue last month, saying that a slowdown in emerging economies is affecting Japan’s exports and production. The same concerns are repeated again this month, this time in the BOJ’s outlook report. In it, the central bank said that sluggishness is expected to remain “for some time” and the pace of economic recovery will likely remain slow.
3. “Helicopter Money” is still out of the question
The BOJ stated that it will continue its QQE + NIRP program until it hits its 2.0% interest rate target. It also promised to implement “additional easing measures in terms of three dimensions — quantity, quality, and the interest rate –if it is judged necessary for achieving the price stability target.”
Explicitly listing down the BOJ’s preferred options hinted that the members still aren’t considering “helicopter money” as an option. Not really surprising since Kuroda has publicly rejected the option days ago, saying that the BOJ “shouldn’t forfeit a clear separation between fiscal and monetary institutions.” For newbies out there, you should know that “helicopter money” usually refers to either directly transferring money to the private sector using the monetary base or paying for fiscal debt.
4. Kuroda to assess “policy effectiveness” in September
Apparently, Kuroda wants to conduct a “comprehensive assessment of the developments in economic activity and prices under ‘QQE with a Negative Interest Rate’ as well as their policy effects” and prepare for staff deliberations by their next meeting (September 20 – 21). Better late than never, right?…RIGHT?!
5. The yen was all over the charts
With the uncertainty over what the BOJ would or wouldn’t do propelling the yen in both directions for days, it’s no surprise that the yen was all over the charts today.
The fun started just after the U.S. session when a “fat finger” incident brought USD/JPY down from 105.00 to 103.00 in seconds. The pair revisited its intraday low twice before the BOJ’s actual policy release caused a spike all the way to 105.68.
Market players eventually saw the underwhelming details, leading them to drag the pair to just above the 103.00 levels where it struggled to find support.