BOJ minutes show QQE expansion “operationally feasible” - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the minutes from the BOJ monetary policy meeting on 29th January were released in Tokyo today and the details reveal that the BOJ staff had presented two options on policy easing – 1) an expansion of QQE and 2) a cut in the interest rate on current accounts held at the BOJ. 


“The presenting of both options and the confirmation that QQE is an option that remains available have helped lift expectations that a future policy step may well include a further expansion of QQE. Some members of the policy board were however concerned that cutting the interest rate on current accounts would be viewed as a sign of monetary policy reaching its limit while another member expressed concern over the impact on financial market functioning.

We think what is clear from the minutes is that the BOJ is indeed running out of scope for monetary easing and while further cuts in the interest rate on current account remains available as does perhaps one further expansion in the pace of asset purchases under QQE, the bigger picture remains that the vast bulk of what the BOJ can do to ease its monetary stance is already behind us.That is one reason why the USD/JPY rate began to reverse course the day after the BOJ easing on 29th January. 

We expect the BOJ to cut again and perhaps to accelerate asset purchases but its impact on the yen is likely to be limited. Certainly further yen gains will make the task of the BOJ more difficult. Next Friday we get the monthly inflation data and the Tokyo readings for March are expected to reveal a further decline in annual inflation. The BOJ favoured annual CPI rate, excluding fresh food and energy is expected to remain unchanged at 1.1%, but the risk is clearly to the downside.

The caution of Japanese corporations and the reluctance to buy into government calls for higher wages were highlighted today by the announcement by Japan Post that it had rejected the request for a wage increase by its 224,000 employees with the BOJ’s negative yield policy cited as a factor in the decision. Japan Post is one of the largest single employers in Japan and this decision will only reinforce the probability that overall wage growth is likely to remain subdued in the fiscal year starting in April.”

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