BOJ: A lone dove again - Nomura

The BOJ kept its policy unchanged yesterday as widely expected and kept its ETF purchase operation unchanged, though the pace of ETF purchases has slowed in October, notes the research team at Nomura. 

Key Quotes

“Mr. Kataoka, a lone dove, dissented again with two new ideas. He proposed strengthening the Bank of Japan’s (BOJ) inflation overshooting commitment by attaching some pre-commitment to additional easing when domestic factors lead to the delay of achieving the price goal. He also advocated purchasing JGBs, so that 15yr JGB yields would remain at less than 0.2%. We doubt his proposals will gain majority support anytime soon though. Governor Kuroda’s comments on the ETF purchase operations were largely unchanged, which should comfort equity investors, supporting risk sentiment. We expect the Bank to implement its easing policy for the time being and widening policy divergence will gradually support yen-crosses into 2018.”

“The Bank downgraded its inflation forecast for FY2017 and 2018. The downgrade of its FY2018 forecast is a small surprise, but the downgrade was just 0.1ppt. The lower end of the forecast among board members is also broadly higher than three months ago, as recently retired board members were more pessimistic on the achievement of the 2% price goal. The BOJ’s assessment on the outlook of inflation is also unchanged. Thus, the BOJ’s view on mid-term inflation, which is more optimistic than the consensus, has not changed materially.”  

“As there have been no major changes in the BOJ’s policy stance, we expect the Bank to implement its easing policy for the time being. As major foreign central banks are normalising their policies, policy divergence will likely keep widening gradually, supporting yen-crosses into 2018. While EUR/JPY has fallen since the ECB meeting last week, we still see upside risks to EUR/JPY into year-end, and we continue to recommend EUR/JPY long exposure.”