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21 May 2014
BoJ to stand pat, no additional QQE in 2014 - SocGen
FXStreet (Bali) - Societe Generale expects no change of policy at the Bank of Japan (BoJ) policy meeting on 21 May.
Key Quotes
"The BoJ decided not to take any action to strengthen its QQE (quantitative and qualitative easing) policies in the previous policy meeting despite the downward revision in its new semi-annual economic outlook for FY2013 and FY2014. The inflation assumption was kept unchanged for both FY2014 and FY2015, reflecting the bank’s confidence that the 2% price stability target is likely to be achieved sometime during the latter half of FY2015. Against this backdrop, we expect no additional QQE measures to be taken for a while."
"In our view, the conditions were already met for the BoJ to take QQE measures at the 30 April meeting. However, the BoJ had no intention of taking any action, implying that it could wait until it confirms that inflation is obviously weaker than its outlook, in which case it would admit that the price stability target will be missed. According to our forecast, the current strength in the pace of inflation may be the peak for FY2014 and FY2015. If our assumption is correct, towards the latter half of FY2014, actual inflation will probably turn out to be weaker than the BoJ’s inflation outlook."
"The next possible date for the BoJ to decide on additional QQE may be April 2015, when the BoJ publishes its new outlook for the economy and inflation. In this report, the BoJ may admit that the 2% price stability target is not attainable within the timeframe indicated. Therefore, the bank will probably decide to push back the timeframe for achieving the target to FY2016. That said, there is a possibility that additional QQE measures may be implemented in January 2015 when the BoJ conducts the mid-term review of its semi-annual outlook report."
"Under Abenomics, Japan needs to be active and aggressively stimulate the economy so that it exits from deflation. However, after last month’s decision not to implement additional QQE, it seems that the BoJ has returned to the trenches. Prime Minister Abe is scheduled to finalise the government’s new growth strategy, which we expect to include corporate tax cuts. After the confirmation of the BoJ’s policy stance, it is now even more important for PM Abe to remain on the offensive and continue to fight for reforms in order to maintain the credibility of Abenomics."
Key Quotes
"The BoJ decided not to take any action to strengthen its QQE (quantitative and qualitative easing) policies in the previous policy meeting despite the downward revision in its new semi-annual economic outlook for FY2013 and FY2014. The inflation assumption was kept unchanged for both FY2014 and FY2015, reflecting the bank’s confidence that the 2% price stability target is likely to be achieved sometime during the latter half of FY2015. Against this backdrop, we expect no additional QQE measures to be taken for a while."
"In our view, the conditions were already met for the BoJ to take QQE measures at the 30 April meeting. However, the BoJ had no intention of taking any action, implying that it could wait until it confirms that inflation is obviously weaker than its outlook, in which case it would admit that the price stability target will be missed. According to our forecast, the current strength in the pace of inflation may be the peak for FY2014 and FY2015. If our assumption is correct, towards the latter half of FY2014, actual inflation will probably turn out to be weaker than the BoJ’s inflation outlook."
"The next possible date for the BoJ to decide on additional QQE may be April 2015, when the BoJ publishes its new outlook for the economy and inflation. In this report, the BoJ may admit that the 2% price stability target is not attainable within the timeframe indicated. Therefore, the bank will probably decide to push back the timeframe for achieving the target to FY2016. That said, there is a possibility that additional QQE measures may be implemented in January 2015 when the BoJ conducts the mid-term review of its semi-annual outlook report."
"Under Abenomics, Japan needs to be active and aggressively stimulate the economy so that it exits from deflation. However, after last month’s decision not to implement additional QQE, it seems that the BoJ has returned to the trenches. Prime Minister Abe is scheduled to finalise the government’s new growth strategy, which we expect to include corporate tax cuts. After the confirmation of the BoJ’s policy stance, it is now even more important for PM Abe to remain on the offensive and continue to fight for reforms in order to maintain the credibility of Abenomics."