BoJ: Kuroda may be preparing deeper NIRP - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the recent comments from Kuroda suggest that there is no planned retreat and in fact he is prepared to ease further across all dimensions including lowering cash rates further and expanding asset purchases.

Key Quotes

“At the Jackson Hole Symposium he said, “Looking ahead, the Bank will continue to carefully examine risks to economic activity and prices at each monetary policy meeting and take additional easing measures without hesitation in terms of three dimensions — quantity, quality, and the interest rate — if it is judged necessary for achieving the price stability target. QQE with a Negative Interest Rate is an extremely powerful policy scheme and there is no doubt that ample space for additional easing in each of these three dimensions is available to the Bank. The Bank will carefully consider how to make the best use of the policy scheme in order to achieve the price stability target of 2 percent, and will act decisively as we move on.”

In particular, it appears that the BoJ is leaning towards a deeper lowering in its NIRP.  Kuroda mounted a defense of this policy at the Jackson Hole Symposium, despite considerable criticism of its effectiveness. He said, the current -0.10% cash rate “is still far from such a lower bound” and described NIRP “as a practical monetary policy tool.”

Re-anchoring Inflation Expectations via “Quantitative and Qualitative Monetary Easing with a Negative Interest Rate” BoJ Governor Kuroda remarks at Jackson Hole.

It is fair to say that the BoJ has limited scope to further expand QE policy in consideration that the BoJ already owns over a third of outstanding government bonds, and the distortion that this may be contributing to in the market.  Although there have been press reports suggesting that the BoJ may expand purchases to local authority (zaito) and local government bonds.

Furthermore, Federal Reserve Vice Chair Fischer may have hinted subtly and inadvertently on Tuesday that the BoJ was leaning this way.  He said, those central banks that are using NIRP, “basically think they are quite successful and are staying with that approach, possibly with the exception of Japan. They are thinking it through and said they will come back to try and make negative rates work better.”

So the BoJ are thinking it through and may try and make negative rates work better.  This could mean a lot of things (Fischer has been dangling a few loaded remarks out there lately, including on the Fed rates outlook).”