BOJ Watch: Kuroda’s bullish tone at odds with growing US, European dovishness

BOJ Watch: Kuroda's bullish tone at odds with growing US, European dovishness

TOKYO — The Bank of Japan sounds quite confident these days, presenting a contrast to the U.S. Federal Reserve and the European Central Bank. But there may be more to the BOJ’s bullishness than meets the eye.

     The Fed earlier this month decided to put off a much-anticipated interest rate increase. At a news conference after the Federal Open Market Committee meeting Sept. 17, Chair Janet Yellen said the central bank wants to “take a little bit more time” to evaluate the impact a hike would have on the U.S. She cited the uncertainty looming over China and other emerging economies, as well as downward pressure on inflation from lower oil prices and a strong dollar. 

     The ECB’s Governing Council on Sept. 3 cut its inflation outlook due to falling oil prices and other factors. At a news conference, President Mario Draghi hinted the bank might expand its quantitative easing program.

     As inflation in Japan is also susceptible to crude oil prices, there has been speculation that the BOJ might serve up more easing, too. This is based on the assumption that the bank’s 2% inflation target is moving out of reach. Nevertheless, Gov. Haruhiko Kuroda was upbeat about the inflation outlook when he met the press Sept. 15, after wrapping up a two-day policy board meeting. 

Feeling cornered?

Kuroda repeatedly said price trends are robust and the inflation rate is expected to rise in the long term. The BOJ estimates the consumer price index, excluding fresh food and energy, rose 0.9% on the year in July.

     Still, the core consumer price index, which excludes only fresh food, remained virtually unchanged from the previous year. To Yuji Shimanaka of Mitsubishi UFJ Morgan Stanley Securities, the BOJ’s emphasis on the strength of price trends sounds like an excuse for not implementing additional easing.

     Not a few market watchers say the BOJ’s bullish stance is actually a sign that it sees few options for further action. The central bank’s quantitative and qualitative monetary easing program, implemented in April 2013, was supposed to be a “short term” strategy for stabilizing inflation at 2% within two years.

     “Even if we launch additional easing,” a BOJ executive said, “it might have only a limited impact.”

     Izuru Kato of Totan Research expressed concern that if the BOJ does not budge despite growing speculation that the Fed will further delay the rate hike, the yen could strengthen.

BOJ Watch: Kuroda's bullish tone at odds with growing US, European dovishness