BoJ remains under pressure to ease policy, achieving inflation goal likely to become even more elusive: ANZ Research

The Bank of Japan (BoJ) remains under pressure to ease monetary policy as: inflation remains far from its goal; its major peers are easing; and its current policy framework lacks efficacy, according to the latest report from ANZ Research.

Governor Kuroda recently said that momentum toward its price stability target is being maintained, suggesting he isn’t on board yet for an easing.

At some point, it will need to deliver. The BoJ is likely mulling over a number of easing options, including a further cut to the negative policy rate and possibly a reverse-twist operation to help steepen the yield curve, the report added.

In an interview with the Nikkei newspaper on September 5, Kuroda said that “we're maintaining momentum toward the price stability target” and that “domestic demand is relatively firm”. These comments are not particularly dovish.

Moreover, they are meaningful in the context of the July policy statement in which the BoJ said that, “it will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost”. Thus, Kuroda seems to implying the case for easing isn’t there yet.

In the same interview, Kuroda said that he was thinking long and hard about policy options and considering a range of possibilities. It’s thus possible the BoJ is undertaking a comprehensive review and hasn’t settled on a suit of measures. It’s clear a number of elements to its current framework are not working.

"The level of the JPY is an important consideration for BoJ policymakers. The BoJ is likely to be cautious about easing at current levels (108). It would be more inclined to act if the JPY was stronger (say 100) and/or under significant pressure to appreciate. It’s possible this point may not be far off with speculative long positions building," ANZ Research further commented.