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Bloomberg survey: 41 out of 43 analysts thought BOJ will not achieve its 2% target by its deadline - Nomura

Analysts at Nomura explained that the BOJ has consistently and vigorously pursued monetary accommodation under its policy of QQE with yield curve control in order to achieve its 2% price stability target as soon as possible.

Key Quotes:

"However, only a minority of market participants, including Nomura, think that the BOJ can achieve its 2% target by its deadline of around FY19 simply by continuing to pursue monetary accommodation only by controlling the yield curve. In a Bloomberg survey conducted in October, 41 out of 43 analysts responded that they thought the BOJ would not achieve its 2% target by its deadline of around FY19. If this view is correct, the BOJ might be tempted to prolong monetary accommodation even if it had little chance of achieving its objective. That said, there are various limits to the extent it could do this.

As a result, some observers have begun to argue that the BOJ may modify its stance on monetary accommodation without waiting to achieve its 2% target. The longer the BOJ continues to purchase assets and increase its JGB holdings, the more likely it is to increase any period losses or any revaluation losses on its JGB holdings when it does exit its current monetary policy. Furthermore, if, as a result of prolonging that policy, the spread between short- and longterm interest rates is squeezed for a long time, this could threaten the stability of Japanese banks and the financial system.

At the moment, we have not factored the possibility that the BOJ might change or modify its current policy of monetary accommodation into our economic forecasts, which cover the period to the end of FY19. However, there is no denying that market participants have begun to talk about such a possibility.

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