April 30, 2014

BoJ meeting on April 30, 2014

Bank of Japan kept its policy unchanged on April 30. In the following press conference hosted by the BoJ governor Kuroda, he continued to imply that he sees no immediate need for additional easing. Interestingly, he also implied that the long term interest should gradually rise. The BoJ revised down its growth outlook for fiscal year 2014 by 0.3% point to 1.1% and made a subtle change in its outlook for inflation. Till the previous meeting, the BoJ forecast that the end of FY2014 and early FY 2015 as the timing when 2% inflation target is achieved, but in today’s meeting, it was changed to FY 2015.

Important takeaways from the press conference

-When asked for his outlook on long term interest rates, the BoJ governor Kuroda subtly implied that the BoJ has a slightly higher long term interest rate outlook than the market. After stating that the market seems to expect the long term interest rates to remain low and stable, he pointed out that the inflation outlook should influence the long term interest rates and the BoJ has higher inflation expectation than the market.

-When asked for his take on consumer behavior in April, he answered that the drop in consumption demand seems to be within the expected range and the negative impact seems limited in cases of service consumption such as tourism. His answers are in line with his previous stances and imply that he does not see a need for additional easing for now.

-When asked for his take on declines in real wage due to sales tax hike, he seemed to struggle to find appropriate answers, but in the end he answered that the wage should gradually rise and the volume of employment is continuing to recover.

-When asked for his take on the need for additional easing, he was careful to stick to the past statement, saying that the BoJ will not hesitate to implement additional easing if economic situation requires it to, but he did not seem particularly sympathetic to the need for additional easing for now.

Market implication

The nudge toward higher long term interest rate is particularly interesting. The BoJ probably likes diminish the impression that the BoJ is trying to control the long term interest rate at a permanently low rate. A higher interest rate would imply higher yen, but the BoJ does not seem to mind the implication. Overall, The BoJ seems to be content with the economic development and disinclined for an additional easing.