BoJ delivered a dovish message – UOB

Senior Economist Alvin Liew at UOB Group assessed the recent BoJ meeting and its renewed dovish bias.

Key Quotes

“The Bank of Japan (BOJ) kept its monetary policy stance and policy rate unchanged in the October Monetary Policy Meeting (MPM) decision today (31 Oct). However, it “dovishly” enhanced its forward guidance to suggest possible rate cuts in future policy meetings (without making any immediate changes)”.

“The BOJ’s new forward guidance states: “As for the policy rates, the Bank expects short- and long-term interest rates to remain at their present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability will be lost.”

“The BOJ’s projected GDP growth and CPI inflation estimates and the forecast ranges were broadly adjusted lower across the forecast period. The effects of the consumption tax hike are still assumed to be “flushed out” by fiscal 2021 with CPI inflation projected now at 1.5% in fiscal 2021 (from 1.6% previously), well below the 2% target”.

“The “dovishly” enhanced forward guidance was perhaps to re-emphasize the BOJ’s commitment to achieving the price target and a signal that more easing measures could be coming (without actually doing easing in the immediate period). However, continued forward guidance without action will not cut it in the end, and we believe that the BOJ will eventually need to act on easing monetary policy via deepening its negative policy call rate to -0.2% possibly in 1Q 2020 (from -0.1% presently)”.