Peter Pan’s Revenge: Kuroda Thinks You’re Crazy To Think BoJ Is Not Still Crazy

If you went into Friday thinking that the BoJ was going to outline an exit plan, hint that their so-called “stealth” taper of JGB purchases presages something meaningful, or that they were otherwise inclined to join the Fed and the ECB in taking their foot off the proverbial accelerator, you were sorely mistaken.

Of course there was no policy change from the central bank and indeed, no one thought there would be:

  • Bank of Japan maintains 10-year JGB yield target at about zero percent after policy meeting Friday.
  • BOJ keeps policy balance rate at -0.100%

But there was some speculation that Haruhiko Kuroda would say something worth taking seriously at the news conference.

Well, he didn’t.

But he did say a whole of things that were funny. Here are the full highlights:

  • Kuroda: Showing Specific Exit Simulations Not Appropriate Now
  • The Bank of Japan is only halfway to its inflation target and things can change
  • Kuroda says vital to win understanding on policy thinking
  • Inflation isn’t rising much even as output gap tightens
  • Upward pressure on wage growth is surely increasing
  • Expect inflation to pick up pace gradually
  • 80 Trillion Yen Is Rough Guideline for Bond Buying
  • It is normal for the volume of the central bank’s purchases of Japanese government bonds to move above and below the annual target
  • Bond purchases are conducted to achieve yield target of about zero percent on 10-year JGBs
  • Purchase volume will change a lot each month
  • ETF purchases part of needed policy to achieve target but are not automatically linked to JGB buying
  • Don’t Think BOJ’s Finances Will Hurt Yen’s Credibility
  • It is possible for the Bank of Japan to suffer losses on its holdings, but that would depend on the scenario, Governor Haruhiko Kuroda says in a news conference following policy decision.
  • Responding to questions, Kuroda commented on normalizing unconventional monetary policy in general
  • The short-term policy rate and balance sheet would generally be a focus when normalizing
  • Not a sure thing that rising U.S. rates would lead to higher rates in Japan
  • The BOJ has been able to keep rates flat even as U.S. rates rose
  • Hitting 2% More Important Than Easing Side-Effects
  • The Bank of Japan can achieve its 2% inflation target
  • Growing talk of a policy exit is due to what’s happening with central banks in the U.S., Europe
  • Continuing recovery in Japan may also be fueling exit talk
  • Possible ETF Buying Could Slow Before 2% Target Hit
  • The Bank of Japan’s purchases of exchange-traded funds and Japanese government bonds are not automatically linked
  • “It’s possible in theory,” Kuroda says when asked about the chance that the BOJ would cut ETF purchases before reaching its 2 percent price target
  • The purpose of the ETF buying is to lower risk premiums, while yield curve control is done with bond purchases, Kuroda says
  • But “it’s generally unthinkable” that the BOJ would keep a part of its easing program and quit another as the whole program is designed to reach the price target, Kuroda says
  • The BOJ has no intention of treating ETF purchases differently from the rest of stimulus program, Kuroda says
  • The BOJ discusses the level of ETF purchases at each policy meeting

I sincerely hope you appreciate Kuroda’s uncanny ability to dispel any and all speculation that he is sane while summarily dismissing the idea that he plans to stop doing what he’s doing anytime soon.

Dove level = expert.

Just scan those bolded bits again. The first thing he does is immediately shoot down the idea that anyone is going to hear anything about an exit strategy. It’s “not appropriate to show you that right now.”

Next, even though it’s “not appropriate to show” you how he imagines this thing playing out, it’s nevertheless “vital” that you “understand his thinking.”

As for the whole notion of the stealth taper, “it’s normal” – so shut up about it.

Is the yen’s credibility at risk? “No.”

Since he holds JPY16 trillion in stocks, is it possible for the BoJ to suffer a giant mark to market loss? “Depends on the scenario” – next question.

Is he worried about unintended consequences or side-effects? “Hitting 2% inflation target more important than that question” – next.

Best of all….

Any chance BoJ will stop buying ETFs before rolling back the rest of the accommodative measures? “In theory” that’s possible, but in reality it’s “generally unthinkable.”

Here’s Goldman throwing up their hands:

No

Right.

And so, the yen dropped versus all of its G-10 peers. Here’s a little context:

yen

And here’s SocGen’s take:

There is speculation among market participants that the BoJ is starting to consider its exit strategy from the current easing framework. However, prices still remain far from the 2% target and have not shown any signs that such a target will be reached anytime soon. The BoJ has repeatedly shown its strong commitment to achieving the 2% target and it is unlikely that the majority of the policy board members have changed their commitment to this. Furthermore, as inflation is not expanding rapidly, there is likely little concern regarding the stability of the BoJ or the yen. Thus, we continue to maintain our belief that the BoJ is not headed toward an exit anytime soon. We continue to expect that the BoJ will continue its current easing framework until the 2% target is achieved, which we expect will be sometime in 2021 – after overcoming the effects of the next consumption tax hike in 2019.

Meanwhile, it’s worth noting that the yuan is set to halt a five-week rally, the longest run since February, as the dollar strengthens, although with the “new” fixing mechanism in place, any weakness is likely to be fleeting.

Yuan

The Nikkei rose on the back of the weaker yen and European shares are higher as well, with Kuroda having assured risk assets that at least one central banker is still their friend. Here’s a snapshot:

  • Nikkei up 0.6% to 19,943.26
  • Topix up 0.5% to 1,596.04
  • Hang Seng Index up 0.2% to 25,626.49
  • Shanghai Composite down 0.3% to 3,123.17
  • Sensex up 0.1% to 31,119.92
  • Australia S&P/ASX 200 up 0.2% to 5,774.03
  • Kospi up 0.01% to 2,361.83
  • FTSE 7469.08 49.72 0.67%
  • DAX 12723.58 31.77 0.25%
  • CAC 5253.49 36.61 0.70%
  • IBEX 35 10727.00 27.40 0.26%

Allow us to leave you with Kuroda’s most famous quotable, delivered two years ago at the 2015 BOJ-IMES Conference:

I trust that many of you are familiar with the story of Peter Pan, in which it says, “the moment you doubt whether you can fly, you cease forever to be able to do it.” Yes, what we need is a positive attitude and conviction.

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