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Can the BoJ reduce collateral damage?

For a man who had got used to generating reams of positive headlines in his early days as BoJ Governor, Haruhiko Kuroda’s recent meetings have fallen flat. The surprise introduction of negative rates at the start of the year received distinctly mixed reviews, while last week’s failure to do little more than announce a small increase in purchases of ETFs proved distinctly underwhelming.

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The BoJ and its (sort of) negative interest rate

  • Kuroda once again pulled a headline-grabbing rabbit out of the hat, with the announcement of a ‘negative’ interest rate on excess reserves.
  • But, as ever with recent BoJ announcements, the devil is in the detail.
  • And today’s announcement could well mark the beginning of the end for a QQE programme that has proved successful in raising underlying inflation.

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Japan: Recovery in recess

  • The BoJ appears overoptimistic about Japan’s economic outlook and we expect the 2% inflation target to remain well out of reach over the coming couple of years. 
  • But the economic recovery is probably just in temporary recess and we do not expect a return to recession. And we think the BoJ will continue to resist the urge to ease policy further.

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BoJ: The end of the easy bit?

  • Contrary to some market participants, we do not expect the BoJ to amend policy this week.
  • An upbeat economic forecast will be used to justify leaving policy unchanged, while the BoJ will fear that the benefits of additional easing might not stack up against the risks.

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Abe: Third time lucky?

Last weekend’s election saw Shinzo Abe triumph for the second time in two years to take office as PM for the third time. This stands Abe in good stead to be Japan’s longest serving leader in more than four decades. More importantly, it gives Abenomics the time it needs to re-establish firmer economic growth and reflate Japan on a lasting basis. 

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