BoJ not expected to move away from negative interest rates  - Commerzbank

The Bank of Japan announced that it would present a comprehensive policy review at its September meeting and, according to Dr Christoph Balz, analyst at Commerzbank, the focus will be above all on its target as well as the efficiency of BoJ measures such as asset purchases and negative interest rates.

Key quotes

“Negative interest rates have been criticised for their adverse impact on banks. At the same time, the BoJ appears to be running out of eligible assets for its JGB purchases, the focus of its quantitative and qualitative easing. There are rumours that the BoJ might switch to a yearly QE target range of ¥70-90trn from the current fixed target of ¥80trn. Such a move would not be a material change of policy in our view.”

“We do not expect the BoJ to move away from negative interest rates which were only introduced in January. The more likely scenario should be an announcement that the fight against deflation risks will be more protracted. For instance, the BoJ is at least likely to extend the timeframe for the 2% inflation target to be reached. At present, it is looking for the target to be reached in fiscal year 2017 (April 2017 to March 2018). A more advanced variant would be for the BoJ to drop the timeframe altogether after having moved it further off into the future on several occasions.”