| In a recent research note by Natixis, it states that Bank of Japan (BoJ) is unlikely to change the QQE with a negative interest rates at its September meeting. Below are key parts of the research note. While its negative side effects on banks’ profit margins and JGB market liquidity have been largely pointed out, Governor Kuroda recently revealed his confidence on the asset purchase program and the negative interest rate policy. Hence, the BoJ is anticipated to reemphasize some of the positive effects of the QQE after the meeting. There is higher chance of easing on November 1st, when the Bank re-examines its economic outlook. Nevertheless, if the BoJ decides to ease at the September meeting, the announcement is likely to be limited to expanding the loan program, which could arguably improve the effectiveness of QQE. |  |
After being disappointed in July, the market is once again intensively debating what new measures the Bank of Japan (BoJ) can introduce at the monetary policy meeting from September 20th to 21st. The reason is that the BoJ stated in July that it would assess the effectiveness of the Quantitative and Qualitative Monetary Easing with a Negative Interest Rate (QQE) to achieve the 2% inflation target at the earliest possible time.
The Wealth Management in Japan 2016 Report
Our view is that they are unlikely to provide additional monetary stimulus in September and to please the market.
Negative interest rate: According to a Nikkei article, the Financial Services Agency (FSA) revealed its concern in mid-August to the BoJ that the negative interest rate policy is hurting banks’ profit margins (Chart 1), making them more difficult to increase loans. However, the BoJ is unlikely to eliminate the negative rate. At Jackson Hole, Governor Kuroda even stated that the negative interest rate helped to lower the entire yield curve and some companies are now issuing bonds at the longer end of the curve. Therefore, the BoJ is expected to reveal its confidence on the negative rate policy and leave it unchanged in September.
Outside of the QQE program, the BoJ could expand its loan program to lift the potential growth rate of the economy. Higher potential rate, which would raise the natural rate of interest, arguably improves the effectiveness of the monetary policy, by effectively lowering the policy rate relative to the natural rate. As a possibility, the size of the program could be expanded from JPY 10 tr to JPY 15 tr. The loan rate could also be lowered from 0.0% to -0.1%, which would in turn support banks’ profit margins.
Nevertheless, our core scenario is that the BoJ will not introduce additional monetary stimulus at the September meeting. Similar to recent speeches in Jackson Hole and Tokyo, Governor Kuroda is anticipated to reemphasize his confidence on the QQE, based on the economic and inflation outlook revised in July. There is a higher chance of easing at the monetary policy meeting from October 31st to November 1st, as the Bank will re-examine its outlook after the release of the September Tankan survey on October 3rd. Nevertheless, if the BoJ decides to ease in September, it could expand the loan program, which would arguably improve the effectiveness of the QQE.
The Wealth Management in Japan 2016 Report
Our view is that they are unlikely to provide additional monetary stimulus in September and to please the market.
Negative interest rate: According to a Nikkei article, the Financial Services Agency (FSA) revealed its concern in mid-August to the BoJ that the negative interest rate policy is hurting banks’ profit margins (Chart 1), making them more difficult to increase loans. However, the BoJ is unlikely to eliminate the negative rate. At Jackson Hole, Governor Kuroda even stated that the negative interest rate helped to lower the entire yield curve and some companies are now issuing bonds at the longer end of the curve. Therefore, the BoJ is expected to reveal its confidence on the negative rate policy and leave it unchanged in September.
Outside of the QQE program, the BoJ could expand its loan program to lift the potential growth rate of the economy. Higher potential rate, which would raise the natural rate of interest, arguably improves the effectiveness of the monetary policy, by effectively lowering the policy rate relative to the natural rate. As a possibility, the size of the program could be expanded from JPY 10 tr to JPY 15 tr. The loan rate could also be lowered from 0.0% to -0.1%, which would in turn support banks’ profit margins.
Nevertheless, our core scenario is that the BoJ will not introduce additional monetary stimulus at the September meeting. Similar to recent speeches in Jackson Hole and Tokyo, Governor Kuroda is anticipated to reemphasize his confidence on the QQE, based on the economic and inflation outlook revised in July. There is a higher chance of easing at the monetary policy meeting from October 31st to November 1st, as the Bank will re-examine its outlook after the release of the September Tankan survey on October 3rd. Nevertheless, if the BoJ decides to ease in September, it could expand the loan program, which would arguably improve the effectiveness of the QQE.
RSS Feed
