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BoJ: Change in policy looks extremely unlikely – Nomura

With the timeframe for the achievement of the BOJ’s 2% price stability target pushed back again and again and the BOJ maintaining its current monetary easing policy for longer and longer, debate about the possibility that the BOJ might amend its policy has started to surface, according to analysts at Nomura.

Key Quotes

“The longer the BOJ maintains its monetary easing policy, the more people are beginning to become aware of its technical limitations. In addition, the longer the BOJ continues to purchase assets, the greater the negative impact is likely to be on both the value of its JGB holdings and its period earnings when it does exit its current monetary policy.” 

“In our view, the speech made by BOJ Governor Haruhiko Kuroda on 13 November was ground breaking because he indicated in this speech what the BOJ saw as the natural level for real interest rates and also introduced the concept of the "reversal rate," noting the possibility that the effects of monetary easing could reverse if the BOJ were to lower interest rates too far. Even based on these arguments, we think it extremely unlikely that the BOJ will amend its current policy of QQE with yield curve control.”

“Following are the five risk scenarios in which the BOJ amends either its current policy of QQE with yield curve control or its policy targets: (1) the BOJ amends its long-term interest rate target in response to an unexpected rise in inflation and a decline in real (market) interest rates; (2) the BOJ modifies its long-term interest rate target because of concerns about the financial system; (3) the BOJ changes its annual JGB purchase target; (4) it modifies its ETF purchase target; and (5) it lowers its 2% price stability target. We cannot entirely rule out the possibility that the BOJ will modify some aspects of its policy under certain conditions. However, we think this is extremely unlikely at the moment.”

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