No Change to BoJ Monetary Policy

by: Steven Towns

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Bank of Japan Leaves Monetary Policy Steady

  • Summary: As widely expected the Bank of Japan voted unanimously to leave monetary policy unchanged saying it will "encourage the uncollateralized overnight call rate to remain at around 0.25%" and continue to purchase government bonds monthly at ¥1.2 trillion ($10.3 billion). It's believed weaker-than-expected CPI data released in late August was a factor in the BoJ's decision. The CPI basket was updated with new components such as flat screen TVs which put downward pressure on the reading. Concern over the strength of the U.S. economy is also seen as a key topic discussed among the board. The BoJ's tankan corporate sentiment survey is due out Oct. 2nd ahead of its next board meeting on Oct. 12-13. Some BoJ watchers say strong readings in areas such as capital spending could influence the BoJ to raise rates.
  • Comment on related stocks/ETFs: Although the outlook is mixed whether the BoJ will raise rates again this year the popular stance is that another 0.25% hike is too insignificant to affect equities whereas most of the impact would be on on bonds and the yen. In its monthly report the BoJ maintained its position that the economy is expanding moderately and is expected to continue doing so. reports BoJ Governor Fukui saying the following at a press conference after the rate decision meeting: "Even looking at the CPI index after the revision, we see that prices are basically on a positive trend. The revision won't prompt us to change our basic stance (on prices)." See WSJ coverage of the latest CPI data and stronger-than-expected CAPEX data. A long-time Japan watcher says he doesn't believe the "fool's gold" yen rally of late and recommends going back to the carry trade. Also see a currency trader's take on inflation in Japan.