BoJ Defied Expectations - BBH
Research Team at BBH, suggests that the Bank of Japan defied
expectations and its economic assessment and left policy unchanged.
“The inaction spurred a 3% rally in the yen and an even larger slump in stocks. The financial sector took it the hardest and dropped almost 6%. The yen's surge helped underpin other Asian currencies, especially the South Korean won, which gained nearly 1%.
The BOJ did do something. It cut its inflation and growth forecasts and delayed for the fourth time in around a year when it would achieve its inflation target. It now stands at some time in the next fiscal year. We have long argued that it is unhelpful for the BOJ cast its inflation target as a near-term objective. Other major central banks are talking about their inflation target as a medium-term objective, and this provides more degrees of freedom.
BOJ Governor Kuroda sounded dovish, and pressure to ease policy in the coming months, perhaps in July, remains possible. The ostensible argument for standing pat is to monitor the impact of the recent easing. However, the BOJ's economic forecasts are consistent with the aggressive easing having little positive impact. Some speculate that Kuroda was sending a message to the Abe government, consistent with the G7/G20 concerns about the over-reliance on monetary policy. The lack of new monetary action may add pressure on the government for a bolder fiscal policy initiative.”