Bank of Japan will maintain policy stance into 2018

Ahead of the Bank of Japan (BoJ) monetary policy meeting on 20-21 December 2017, Katsunori Kitakura, lead strategist at SuMi TRUST, explains why the central bank will hold its monetary policy stance and comments on his outlook for the next BoJ Governor:

“There will be no change to current monetary policy at the Bank of Japan’s (BoJ) meeting on 20-21 December. Existing measures will be maintained with no major impact on the foreign exchange market. Given that the Q3 2017 GDP growth rate was revised upwards, it is likely the BoJ will revise its 2017 fiscal year (FY) outlook higher as well. Meanwhile for FY 2018 and beyond, since there are no internal or external factors that are currently impacting Japan’s economy, the forecast will remain unchanged.

“However, the negative impact of current monetary easing measures on financial markets is larger than the economic benefits of inflation. Therefore, it is more important to find a path towards normalisation of monetary policy (reducing balance sheets, interest rate hikes) than avoiding deflation and achieving the inflation target.

“Current speculation around whether Governor Kuroda will be re-appointed when his term ends in April 2018 is the talk of the town. We think that appointing someone at the BoJ who can smoothly communicate an exit strategy to the market would be more desirable than the re-appointment of Governor Kuroda. However, as the next appointment will be made by Prime Minister Shinzo Abe who will be in power over the long term, maintaining the current route and therefore keeping Governor Kuroda in his role is the most likely scenario.”