Bank of Japan makes surprise policy tweak; Here’s What the Experts Say

Here are some comments from experts:

Takeshi Minami, chief economist at the Norinchukin Research Institute, Tokyo:

“It came as a surprise, but if the decision is delayed into next year, (the BOJ) may not be able to take such a step because the economy will get worse.

“The BOJ will continue to monitor the markets while taking further steps if needed. But it is unlikely that policy will be automatically shifted due to the replacement of Governor Haruhiko Kuroda with someone else in April.”

Atsushi Takeda, chief economist, Itochu Economic Research, Tokyo:

“Today’s move reflects the BOJ’s determination not to change its yield treatment control policy. But the BOJ failed to communicate with the markets, as it did nothing to prepare the ground or allow the markets to make such a move.” Didn’t try. It all came suddenly. Market players must be angry with the decision.

“The BOJ must have been forced to act because the efficiency of the bond market is nearly dead.

“The way the BOJ moved suddenly without communication with the market, the BOJ’s actions become unpredictable, making its mind almost impossible to read. Whoever becomes the next governor of the BOJ must make monetary policy more transparent.” And try to make it predictable.

Kheng Siang Ng, Asia Pacific head of fixed income at State Street Global Advisors, Singapore:

“This signals the beginning of a slow move to ultra-low interest rates in Japan.

“The change to the YCC range will help to artificially depress the bond market from central bank bond purchases, and improve secondary trading liquidity.”

“As investors assess further implications … markets could remain volatile for weeks to come.”

Naomi Muguruma, chief fixed income strategist, MUFG, Tokyo:

“This was a surprise to most market participants, including us. There is a risk that the yen may appreciate further as (it) is just ahead of holidays in overseas markets, so yen short positions may decrease further. Is.”

“This is one of the first steps the BOJ has decided to take, but I don’t think (it) will announce the end of YCC or negative interest rate policy any time soon.”

Takumi Tsunoda, senior economist, Shinkin Central Bank Research Institute, Tokyo:

“Since the BOJ is unlikely to be able to continue with its current policy … it would be expected that there would be another policy change.

“But rather than suddenly dropping negative interest rates or yield-curve controls, it is more likely that the target maturity under the yield-curve controls policy will be shortened, for example to seven years from 10 years at present.

“Once there is a new governor, there will be views again. Over time it is likely that they will first want to see how sustainable the current economic recovery is.”

Nobuyasu Atago, chief economist, Ichiyoshi Securities, Tokyo

“Once we get into next year, the United States and Europe will enter recession. There is a high probability of that actually. So there will certainly be further talk about what to do with regard to additional monetary easing.

“So long-term rates could be lowered if they are kept as high as possible … If anything,[the risk]is increasing that there will be an economic recession next year, so I think it will be important if and when additional Spontaneity is requested then preparation.”

Hiroshi Namioka, chief strategist and fund manager, T&D Asset Management, Tokyo:

“It was a surprising decision at a time when the market expected a lame-duck situation at the end of Governor Kuroda’s term … It was a good move, including the fact that it came against economists’ expectations. The current policy framework would have mandated an endless bond-buying if everyone expected (change). Congratulations to the BOJ for the surprise.

Between the impending US recession and the end of the Fed’s rate hikes, this could be the last chance for the BOJ to move.

Bart Wakabayashi, Branch Manager, State Street, Tokyo:

“They have these two bazookas left – removing the YCC and raising interest rates, possibly into positive territory. There are huge bazookas that will propel the yen strongly.

“Maybe it’s a small step to test the strategy and see how the market reacts, and how much it’s reacting.

“I think we’re seeing the first finger in the water.”

Kerry Craig, global strategist, JP Morgan Asset Management, Melbourne:

“The move came earlier than I expected, but it is a step towards the policy normalization process in Japan. However, it is only the first step and yield-curve control (YCC) remains, as does the negative rate strategy .

“Further adjustments would need to be made given that inflation has been persistent and that the YCC was probably no longer necessary, or that the negative effects of the YCC are outweighing the helpful ones as inflation continues to rise.” Implications for the Market Forex Most prevailing in the markets … signs that the BOJ is slowly moving away from excessively loose policy should turn the yen positive in the near term.”

Carol Kang, currency strategist, Commonwealth Bank of Australia, Sydney:

“I think the move was certainly unexpected, to say the least. And the dollar/yen just sold off sharply on the back of the YCC revision, and I think this paves the way for a complete abandonment of the YCC program, and perhaps a future pivot from a highly dovish monetary policy stance.”

Ayako Fujita, chief economist, JP Morgan Securities, Tokyo:

“Since it would have been difficult to change the plan once the market had fully priced in, the decision was justified – the BOJ could not have given the market the expectation (of change).

“Regardless of the leadership, whether Kuroda or a new governor, some degree of tweak was expected, given the changing fundamentals, where price inflation and yield expectations were actually rising.

“We do not expect further changes to the YCC (in the January and March meetings) as this would harm market operations.”

Moh Seong Sim, currency strategist, Bank of Singapore:

“They’ve widened the band, and I think it came earlier than expected. It raises the question of whether this is a harbinger of what’s to come in terms of normalization of policy.”

“The writing is on the wall that perhaps the sharp yen weakness we’ve seen before was inconvenient for policy makers … It’s clear this adds to the yen strength story next year.”

Christopher Wong, currency strategist, OCBC, Singapore:

“The timing of the policy tweak is a surprise, although we are expecting the move to come in 2Q 2023.

“The tweak may seem minor but is significant for a central bank that has long held dovish. The implication is a modest improvement from the widening UST-JGB yield differential … and a moderate-to-softening USD profile going forward.” May fall in USDJPY.”

The text of this story is published from a wire agency feed without any modification.