Despite the recent speculation about further monetary easing, the BoJ decided unanimously to maintain the “quantitative and qualitative easing” (QQE) unchanged. The monetary base will increase at an annual pace of 60-70 trillion yen. The inflation target of 2% also remains intact.
The BoJ keeps the option of a QQE expansion open, if downside risks to the economy increase. As revealed by the policy statement, the BoJ still holds a cautiously optimistic view on the Japanese economy, quoting “a high degree of uncertainty”.
In a recent interview with the Financial Times, BoJ governor Kuroda shared his thoughts in an attempt to improve transparency. Here he once again confirmed that the QQE will not be exited before the inflation has reached and stays around the 2% target. At the same time, he keeps his options open regarding further easing, including negative interest rates on bank reserves, purchase of foreign assets, more purchases of assets other than Japanese government bonds and more precise forward guidance.
In addition, Kuroda favours the consumption tax hike and votes for the second hike to 10% in October 2015. He implicitly puts pressure on Premier Abe to continue with the third arrow of Abenomics, saying that delaying fiscal consolidation too long would be very dangerous for the Japanese economy and that structural reform is the only way to raise the potential growth rate to 2%.
So far Abe has failed to impress the markets with his attempt to implement much-needed reforms. The government said earlier to reveal a reform package in December, which seems likely to be postponed to 2014. We remain cautious on Japanese growth, 1.4% y/y in 2014 and 1% in 2015, until some noticeable changes are introduced. We also maintain our long-term JPY forecast at 110 at end-2015.
Nordea