BoJ likely to maintain ‘QQE with yield curve control’ policy unchanged at this week’s monetary policy meeting, says Danske Bank

The Bank of Japan (BoJ) is expected to maintain its ‘QQE with yield curve control’ policy unchanged at this week’s monetary policy meeting and markets will be listening closely whether Kuroda will elaborate on recent comments, according to a recent report from Danske Bank.

Speculations about policy tightening from the Bank of Japan (BoJ) has gained momentum since governor Kuroda gave a speech at the University of Zurich, where he mentioned the “reversal rate”. Since then, Kuroda has backtracked somewhat on the Zurich remarks, saying that the yield curve control is designed to be highly sustainable. The economic upturn in Japan is still mainly driven by foreign demand as Japanese exporters enjoy tailwind from the relatively weak yen.

Japan’s ruling bloc has approved a plan to cut the corporate tax rate to around 20% from 30%. The plan, which would be effective for three years from fiscal 2018, needs parliamentary approval to be enacted. If endorsed it would be a helping hand for the BoJ, as the proposed tax cut would apply only to companies that raise wages aggressively and boost domestic capital spending.

"We believe the BoJ would like to allow for higher longer-term rates in order to give banks some breathing space, but in the current environment with a flat global yield curve, we simply do not think there is room for this. While we still expect Fed-BoJ divergence, solid global growth and higher global yields (eventually) to support the cross, we see little potential for a substantial move higher over the medium term," the report added.

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