BoJ preview: Voting pattern and press conference in focus

Masayuki Kichikawa, Shuichi Ohsaki and Shusuke Yamada - Lunes, 17 de Noviembre

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BoJ preview: Voting pattern and press conference in focus 

We expect no change in the monetary policy framework at the upcoming monetary policy meeting on 18-19 November, the BoJ having only just decided to ease further (31 October), driving the yen weaker and equities substantially higher. Media sources have posed the question as to how policy board member views may be affected if the next consumption tax hike is postponed (or if discussion continues along those lines). In our view, at least the five members who voted for additional easing at the last meeting will not change their stance.  

We think the focus at the upcoming meeting should be on two areas. Firstly, we will be interested to see the voting pattern among board members' decision to stay on hold. At the 31 October meeting when the BoJ opted to ease further, the board was split right down the middle: five for, four against. It might be natural to assume the voting pattern will change, particularly given that the decision to enhance monetary easing vs maintaining a policy are different in nature. Secondly, we will be listening closely to the BoJ governor's post-meeting press conference for indications of the BoJ's view on whether prime minister Shinzo Abe will call a general election and postpone the next consumption tax hike (or if this continues to look likely even without any official announcement to that effect). 

 

BoJ governor Haruhiko Kuroda has commented that cutting the national debt is very important. Many in the financial markets presumably take this to signify implicit support for a consumption tax increase in 2015 as scheduled. Moreover, though Kuroda has himself denied it, we cannot rule out the possibility that the additional easing decision of 31 October was timed to bring about the necessary improvement in economic and financial conditions to ease the way for a second consumption tax hike. As a result, if the next consumption tax hike is postponed (of if it continues to look as if it may be), we can expect many questions on this subject.  

In our opinion, we think Kuroda probably wants to emphasize two points. Firstly, that the job of monetary policy is merely to ensure inflation reaches the target level, and that the tax system is not the domain of the BoJ, which will continue to apply itself to getting inflation up to the target level whatever the conditions it is given to work with. So we expect his stance to remain that of not hesitating to make the needed adjustments in policy while monitoring the inflation trend.  

The second point we think Kuroda wants to emphasize, and something he has stressed before, is that if concerns over Japan's fiscal health end up destabilizing the bond market, it makes the BoJ's job very difficult. So we think he is repeating the view that it is very desirable for the government to be tackling the issue of rebuilding its fiscal position over the medium to long term.  

The BoJ must be fully aware that if questions do arise over the cooperative relationship between the government and central bank, it could lead to unnecessary fluctuations in financial markets, making the job of bringing about an economic recovery and achieving the inflation target more difficult. We think governor Kuroda will be looking to allay market concerns by signaling no change in the BoJ's stance, while also encouraging the government to improve Japan's fiscal health. 

 

Please see full report for further details... 

Chart of the Day: Japan 3Q GDP shrinks unexpectedly, probability of tax hike postponement rises 

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