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BoJ communications in focus - Nomura

Yujiro Goto, Research Analyst at Nomura, notes that five out of nine BOJ board members have made speeches since mid-October, after board member Harada’s speech last week.

Key Quotes

“Two new board members, Mr. Suzuki and Mr. Kataoka also had their first interviews with local media this month, and board member Masai is scheduled to make a speech next Wednesday. Deputy Governor Iwata’s opening remarks today made no headlines, but eight board members’ views will be heard in two months (excluding Mr. Iwata). As market interest in the possibility of a change BOJ policy has been gradually rising, we have summarised recent key comments from board members.” 

“Since Governor Kuroda mentioned a “reversal rate,” market interest in the possibility of a BOJ policy adjustment to alleviate the negative impact on banks has risen. Deputy Governor Nakaso showed a balanced view on monetary easing impact on banks’ profitability yesterday, while he touched on the negative impact of monetary easing on banks’ profitability, which causes intensifying competition among banks. Mr. Suzuki also showed his concerns over the negative impact of negative rates on banks’ profits in his interview with Mainichi. He currently judges banks’ financial strength is not in trouble, but he sees this negative side effect as a risk in the future.”

“Mr. Suzuki’s background is in banking and his concerns over the banking system are understandable. Interestingly, Mr. Harada and Mr. Kataoka, dovish members, also admit to negative side effects on banks’ profits. However, their recommendations are different, as they said aggressive easing will be ultimately positive for banks, as interest rates will rise after achieving the price target. Thus, Mr. Kataoka argues more easing is necessary, while Mr. Harada said a reversal rate is not happening in Japan during Q&A recently. Governor Kuroda reiterated last week that banks’ intermediation role is not hurt by easing at the moment, which is in line with the latest Financial System Report. Mr. Sakurai and Mr. Funo made no comments on banks’ profitability in their speeches. While Mr. Nakaso and Mr. Suzuki sound more concerned about negative side effects on banks’ profitability, this view is not becoming consensus.”

“On the exit policy, Mr. Harada said that it makes perfect sense that Japan’s exit should come later than foreign central banks. Mr. Funo and Mr. Sakurai said the Bank should continue its current powerful easing. While speeches were older, Deputy Governor Iwata and Ms. Masai also took a similar stance. Mr. Suzuki also echoed the importance of pursuing powerful easing for now, while he said discussions about small adjustments should not be ruled out, sounding a bit more hawkish here too.” 

“At the moment, hawkish comments are mostly coming from Deputy Governor Nakaso and board member Mr. Suzuki, while other members’ views suggest the current easing framework is likely to continue. We judge premature tightening by the BOJ as unlikely, especially as the BOJ leadership nomination is approaching. It is thus premature to position in the FX market for BOJ tightening, in our view. At the same time, Mr. Nakaso is viewed as a possible successor to Governor Kuroda, and his appointment may increase market expectations of an early BOJ policy change. By contrast, a dovish surprise by appointing Mr. Honda for the leadership position cannot be ruled out. The new BOJ leadership announcement is likely within the next three months, which will be crucial for JPY trends into 2018.”  


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