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8 Jul 2013
Flash: Risk of BoJ Kuroda disappointing the market lower - Nomura
FXstreet.com (Barcelona) - The BOJ is likely to leave its monetary policy unchanged at this week's meeting (July 10-11), says Yujiro Goto, Strategist at Nomura.
As Goto notes, "Volatility in the JGB market is gradually falling, and this also decreases the necessity to rush further policy responses." The Nomura Strategist underlines the relative trading stability seen in the JGBs market amid higher volatility in the global fixed income market after the BOJ revised its JGB buying operation twice since April 4.
However, the failure to revise its framework in June, according to Goto, "suggests the bank is now more confident of avoiding unnecessarily high volatility in JGBs", thus, "expectations for additional easing next week are likely to be limited and the negative impact of the decision on USDJPY should be smaller than the previous two meetings" Goto said.
Goto thinks "the sharp depreciations of USDJPY after the previous two meetings were mainly caused by increasing concerns about higher JGB yields." Goto suspects "The BOJ will review its economic and inflation forecast and is expected to keep its optimistic economic and inflation outlook, suggesting 2% inflation in two years is possible." The forecasts, in view of Goto, "may still reduce JGB investors' incentives to accumulate JGBs, as the possibility of a earlier rate hike can not be excluded."
In conclusion, Gota thinks " BOJ governor Kuroda needs to re-emphasize that the bank will commit to stabilize the JGB market and will take the necessary measures if volatility in the market rises again. Governor Kuroda's stance became more flexible recently and we believe the risk of governor Kuroda significantly disappointing the market is now lower. The recent rise in USDJPY is also justified by stronger US data, which suggest possible adjustment after the BOJ meeting is likely to be smaller."
As Goto notes, "Volatility in the JGB market is gradually falling, and this also decreases the necessity to rush further policy responses." The Nomura Strategist underlines the relative trading stability seen in the JGBs market amid higher volatility in the global fixed income market after the BOJ revised its JGB buying operation twice since April 4.
However, the failure to revise its framework in June, according to Goto, "suggests the bank is now more confident of avoiding unnecessarily high volatility in JGBs", thus, "expectations for additional easing next week are likely to be limited and the negative impact of the decision on USDJPY should be smaller than the previous two meetings" Goto said.
Goto thinks "the sharp depreciations of USDJPY after the previous two meetings were mainly caused by increasing concerns about higher JGB yields." Goto suspects "The BOJ will review its economic and inflation forecast and is expected to keep its optimistic economic and inflation outlook, suggesting 2% inflation in two years is possible." The forecasts, in view of Goto, "may still reduce JGB investors' incentives to accumulate JGBs, as the possibility of a earlier rate hike can not be excluded."
In conclusion, Gota thinks " BOJ governor Kuroda needs to re-emphasize that the bank will commit to stabilize the JGB market and will take the necessary measures if volatility in the market rises again. Governor Kuroda's stance became more flexible recently and we believe the risk of governor Kuroda significantly disappointing the market is now lower. The recent rise in USDJPY is also justified by stronger US data, which suggest possible adjustment after the BOJ meeting is likely to be smaller."