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5 Feb 2015
BOJ board nomination delayed, dovish direction clearer - Nomura
FXStreet (Bali) - The Bank of Japan, against market expectations, refrained from submitting its nomination of a new BOJ board member on Wednesday, notes Nomura FX Strategist Yujiro Goto, adding that despite the delay, the government bias for a dovish person looks clearer, and that should keep expectations for further easing high.
Key Quotes
"The government refrained from submitting its nomination of a new BOJ board member on Wednesday, although Bloomberg reported that the government had planned to make the nomination today. Nikkei and other local media reported that the government was likely to nominate Professor Yutaka Harada as a new board member. The DPJ, the biggest opposition party, criticised the leak and the government decided to delay the nomination, according to Bloomberg."
"Even though the nomination of the new board member is delayed, local media reports about Mr Harada's appointment clearly suggest that Prime Minister Abe is going to choose a dovish person to replace Mr Miyao."
"Mr Harada gave an interview to Asahi newspaper on 21 January, where he made a couple of comments on monetary policy. In terms of the 2% inflation target, Mr Harada said it may be difficult to achieve 2% soon, but it is necessary to raise inflation from the current 1% level and further easing is necessary for that. He also said inflation expectations are emerging, as actual inflation has accelerated from -0.5% to above 1%, but it is essential to make people believe inflation will increase further from 1%. Regarding the possible policy options for the BOJ, Mr Harada said the BOJ could still purchase more JGBs, as the outstanding of JGBs is now JPY1000trn. He prefers to purchase JGBs to ETFs, as the volatility of ETFs is greater and the positive impact of ETF purchases may not distributed evenly to the economy."
"His view on the level of JPY is clear, as he said JPY weakness would be negative for the economy if the economy is at full employment."
"As the DPJ criticised the media leak, it is not certain whether the government will nominate Mr Harada, or whether it will seek another candidate. However, the government bias for a dovish person looks clearer now, and the nomination of Mr Harada, or potentially another dovish person, would be regarded as a clear sign of Prime Minister Abe’s strong support for Governor Kuroda’s accommodative policy stance. Market expectations for BOJ easing are likely to remain high, which would continue to support USD/JPY this year."
Key Quotes
"The government refrained from submitting its nomination of a new BOJ board member on Wednesday, although Bloomberg reported that the government had planned to make the nomination today. Nikkei and other local media reported that the government was likely to nominate Professor Yutaka Harada as a new board member. The DPJ, the biggest opposition party, criticised the leak and the government decided to delay the nomination, according to Bloomberg."
"Even though the nomination of the new board member is delayed, local media reports about Mr Harada's appointment clearly suggest that Prime Minister Abe is going to choose a dovish person to replace Mr Miyao."
"Mr Harada gave an interview to Asahi newspaper on 21 January, where he made a couple of comments on monetary policy. In terms of the 2% inflation target, Mr Harada said it may be difficult to achieve 2% soon, but it is necessary to raise inflation from the current 1% level and further easing is necessary for that. He also said inflation expectations are emerging, as actual inflation has accelerated from -0.5% to above 1%, but it is essential to make people believe inflation will increase further from 1%. Regarding the possible policy options for the BOJ, Mr Harada said the BOJ could still purchase more JGBs, as the outstanding of JGBs is now JPY1000trn. He prefers to purchase JGBs to ETFs, as the volatility of ETFs is greater and the positive impact of ETF purchases may not distributed evenly to the economy."
"His view on the level of JPY is clear, as he said JPY weakness would be negative for the economy if the economy is at full employment."
"As the DPJ criticised the media leak, it is not certain whether the government will nominate Mr Harada, or whether it will seek another candidate. However, the government bias for a dovish person looks clearer now, and the nomination of Mr Harada, or potentially another dovish person, would be regarded as a clear sign of Prime Minister Abe’s strong support for Governor Kuroda’s accommodative policy stance. Market expectations for BOJ easing are likely to remain high, which would continue to support USD/JPY this year."