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You Will Have To Pry Kuroda’s ‘Very Powerful Easing’ From His ‘Very Cold, Very Dead’ Hands

Any questions? If so, you can direct them to Kuroda's secretary, Tinker Bell.

Well, the Trump / Kim meeting news came not a moment too soon for USDJPY which desperately needed an excuse to rally and that’s just what happened overnight, starting the very second the headlines hit:

USDJPY

That took some of the pressure of the BoJ and especially Kuroda, who a week ago rattled FX markets by accidentally using the word “exit” in the same sentence as “policy” at a confirmation hearing.

He would subsequently walk those comments back, but the market is hyper-sensitive to that kind of thing right now, thanks in no small part to the fact that the Trump administration has adopted a weak dollar policy (in both word and deed). Pan out on an annotated chart and you can see what I mean:

USDJPY2

So it helped that USDJPY was already biased to moving higher as part of a broader risk-on sentiment headed into the BoJ decision and subsequent Kuroda presser. Of course the BoJ left everything unchanged (they did tweak the inflation language in January if you recall) and Kataoka dissented.

As far as the presser was concerned, Kuroda reiterated what everyone else has said about global trade, namely that protectionism is a bad idea. “G-20 and G-7 share the same views on the importance of free trade,” he said, adding that “protectionist measures hurt economies who implement them by hitting their imports.”

This a day after Mario Draghi said the following in the ECB presser:

Kuroda went out of his way to downplay his errant “exit” comments (of course, as we’ve said previously, all he was doing last Friday was effectively reiterating the idea that the BoJ expected to hit its inflation target in 2019, but the nuance didn’t matter to markets).

“Hitting 2% wouldn’t automatically trigger a sudden policy shift,” he said today, giving everyone what they wanted to hear, before adding that the BOJ is “not considering adjusting yield curve now” and “would consider more easing if price momentum weakens.” He continued, saying that he’d “make any needed policy adjustments to maintain momentum” on the inflation front.

So there’s that. And here’s Goldman explaining why the FX tantrums are serving to ensure that Kuroda can never exit:

Expectations for the early normalization of interest rates have been smoldering on the forex markets, as shown by the sharp yen appreciation that immediately followed the BOJ’s January 9 announcement of a reduction in its regular JGB purchasing operations. The yen also appreciated in reaction to Governor Kuroda’s remarks during the Diet (Lower House) hearing on February 2. As there is a possibility that Japan’s long-awaited move out of deflation could be derailed if yen appreciation takes root prematurely, we think the BOJ is likely to maintain current monetary policy and place a tight lid on any talk about an exit for the foreseeable future. We also see a risk that the more market expectations for normalization mount, the more actual normalization process will become like a mirage, moving further down the road.

Any questions? If so, you can direct them to Kuroda’s secretary, Tinker Bell.

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