Further comments by BOJ governor, Haruhiko Kuroda
- No policy option takes priority over others if BOJ were to introduce more easing
- It would depend on conditions at the time
- BOJ will always weigh the costs and benefits of policy in guiding monetary policy
This is a very convoluted argument but I reckon if the BOJ sets out to ease policy by only cutting rates deeper into negative territory, it would eventually lead to more yen strength down the road.
The thinking here is that the threat of easing is potentially more effective than the easing measures itself, particularly if it is as lousy as just cutting interest rates a bit more for the BOJ. I've made this point earlier this week:
If you have an overwhelming urge to break the rules (bid up the yen), what exactly is stopping you? The impending punishment (BOJ intervention/stimulus) of course. However, if said punishment isn't as impactful as the threat of the punishment itself, then you're just going to go ahead and break the rules anyhow.
Given global trends, it is no surprise that the yen is among the favoured currencies over the next 12-18 months. If cutting rates slightly is the BOJ's idea of throwing the kitchen sink at the issue, that will do little to scare off markets from buying up the yen in the big picture.
