March Meeting Minutes Review
The BOJ meeting minutes pour cold water on BOJ normalisation expectations following their release. Though the bank kept policy unchanged at current levels, as was widely expected, the market was taken slightly by surprise to learn that several on the BOJ board cautioned against a premature exit from the bank’s current program of ultra-loose monetary policy.
The minutes also highlighted the extent to which the board took its time to communicate its policy decisions highlighting that recent market volatility was likely down to the growing level of market interest in when the BOJ was likely to begin reducing its stimulus program.
The minutes said that “ It was important for the BOJ to thoroughly explain to the public… that the economy had not yet reached a phase where it should consider the timing and measures of a so-called exit from monetary easing”. The minutes also said that “while normalisation, or a gradual reduction in the degree of monetary accommodation, could become a topic for consideration in the future, the BOJ needs to explain to markets that normalisation… would be different from monetary tightening”.
Furthermore, BOJ Chief Kuroda was keen to stress that the bank remains ready to increase its stimulus programme if necessary in the event of any moderation in economic activity. Clearly the BOJ, as we have seen with other central banks such as the BOE, is fighting to keep balance within the market’s expectations. Speculation over a potential shift in policy can cause a damaging shift in rate and FX markets which can make the BOJ’s job even more difficult, so it is important for Kuroda to help keep markets calm.
Takeaways From The April Meeting
One area that has become a major focal point from the last meeting was the BOJ’s decision to drop the timeframe with regard to hitting its inflation target. While some have criticized the move saying that it shows the BOJ has lost confidence in its ability to drive inflation and the likelihood of hitting its inflation target.
At the April meeting, the BOJ issued a new forecast which shows inflation hitting 1.8% in FY2018 and 2020, meaning that inflation is likely to remain below target for another three years. Indeed, eight of the nine BOJ board members agreed that there were downside risks to this forecast especially for the 2020 projection.
Interestingly, during comments made to Reuters, an ex BOJ board member Kazuo Momma said that; “the decision to drop the timeframe reflects a growing view within the BOJ that its not easy to change public perceptions that inflation will stay very low, even with bold monetary easing”.
Momma added that “The BOJ has made clear it no longer has any timeframe in mind in guiding policy. That means it could maintain current policy for years if the price target remains elusive”. Essentially, Momma thinks that the move is in intended to give the BOJ as much of a free hand on future policy as possible.
The sell-off in JPY has seen USDJPY trading back to just shy of some big technical levels. The 110.25 resistance is sitting around 100 pips above market where we also have the bearish trend line from late 2017 highs. Above there we also have the 110.86 level which was the November 2017 low, so there are quite a few keys resistance levels on the way up. If we do see any retracement from these levels, the next major support in USDJPY isn’t until 107.90 which was the site of the breakout last month and should see decent demand if retested. For now, it looks as though the 107 – 110 range is likely to persist until we get any stronger directional catalyst.