A client note from HSBC Global Research on the BOJ meeting last week.
In brief:
- The Bank of Japan policy board left the size and pace of its asset purchases unchanged, as expected
- Downgraded its assessment of exports and industrial production in line with recent weak data
- But remains confident that the slowdown in economic activity following the April VAT hike is gradually easing
- Nothing in the August policy statement or Governor Kuroda’s press conference remarks today suggest that the BoJ is losing confidence in its ability to engineer 2% inflation in the next year and a half
HSBC concludes:
- Additional easing is unlikely in the near term; we expect the BoJ to stay pat through at least FY2014 (ending March 2015)
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On Kuroda’s press conference:
- Crucially, the Governor said that he did not expect growth to fall below the central bank’s 0.5% y-o-y estimate for Japan’s potential growth rate, implying that Japan’s (positive) output gap would steadily widen over the medium term, supporting a pick-up in prices.
- Though the Governor repeated his standard script that the BoJ would “not hesitate to adjust policy as needed” if there is a threat that weak growth would derail its objective of achieving 2% inflation, he stressed that “price stability” remained the central bank’s no. 1 goal.
- We have long-argued that weak growth alone is not enough to move the BoJ into delivering further easing, and Kuroda’s latest remarks seem to support this view.
