Bank of Japan Takes Fresh Action

23 Dec 2015 | Author: | No comments yet »

Decision-Day Guide: BOJ Expected to Keep Wait-and-See Posture.

An unexpected move from the Bank of Japan: the central bank will extend the average maturity of government bonds in its portfolio – an effort to flatten out the yield curve – and it also announced a new ETF purchase programme. All but one of 42 economists surveyed by Bloomberg forecast that Governor Haruhiko Kuroda and his board won’t further expand their unprecedented asset-buying program on Friday. Under this new program, the Bank will purchase ETFs composed of stocks issues by firms that are proactively making investment in physical and human capital.

Credit Agricole SA’s economist is alone in forecasting additional stimulus this week. “It’s not time yet for the BOJ to step up,” said Masamichi Adachi, an economist at JPMorgan Chase & Co. and a former central bank official. “Japan’s recovery is gathering speed gradually and they can defend falling prices and weak inflation expectations by attributing to the plunge in oil for now.” Economists are divided on whether the BOJ will expand its easing policy in 2016. It’s going to be a buy for Japanese stocks for a while.” The BOJ kept its main target for monetary stimulus unchanged, indicating confidence in the economy after data from capital spending to business confidence and unemployment exceeded expectations.

Since the board’s November meeting, several key pieces of data have indicated a pickup in Japan’s economy as revised gross domestic product, capital spending, corporate sentiment and the jobless rate all outperformed analysts’ estimates. Overall, the bank kept the course of monetary policy on hold, choosing not to expand its quantitative and qualitative easing programme beyond its current level of buying Y80tn assets a year. Goldman Sachs Group Inc. this month postponed its forecast for further easing to April from January, citing stronger-than-expected data including capital spending.

To critics, the BoJ missed its best opportunity to ease when in October it delivered new, downgraded forecasts for inflation and the economic outlook. For one, economic growth in the September quarter was revised higher to 1 per cent from an initial estimate of -0.8 per cent, meaning Japan did not fall into another technical recession (defined as two quarters of negative growth) in the third quarter as previously thought. Given the renewed slide in crude oil prices and the risk this presents, BOJ officials are closely watching gauges of inflation expectations, people familiar with the matter who asked not to be identified because the discussions were private told Bloomberg. A BOJ inflation survey released Tuesday showed that companies have lowered their inflation forecasts in the past six months. “The reality is that mid- to longer-term inflation expectations are waning at the moment,” Kazuhiko Ogata, chief economist at Credit Agricole, wrote in a report on Dec. 15. Economists including those from JPMorgan Chase and SMBC Nikko Securities Inc. are closely tracking the currency’s moves, because a yen level around 115 against the dollar could be a decisive factor in pushing the bank to expand stimulus.

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