Bank of Japan (BOJ) governor Haruhiko Kuroda, hinted over the sidelines of IMF meeting in Lima, that there is unlikely to be a stimulus expansion of October 30th, which is in clear contradiction to many analysts and economists, who feels a move is inevitable.
Why BOJ is reluctant to increase its stimulus –
· Political pressure – Any further stimulus from BOJ will weaken the Yen, which would be considered by many policymakers around the world, such as in China, South Korea, US as competitive devaluation and beggar thy neighbor policy.
· Energy imports – In spite of world’s second largest economy, Japan is energy poor nation and imports most of its energy needs which had intensified since Fukushima Daichi nuclear disaster which led to shut down in nuclear power generators in Japan (though have initiated the process of reviving). BOJ stimulus and weak Yen has lead higher energy import cost for Japan.
· Liquidity – Bank of Japan (BOJ) is sucking the liquidity out of Japanese government bond market. As of latest analytics from BNP Paribas by end of this year Bank of Japan’s share in outstanding government bond will be 37.8% (for less than 1 year), 35.9% (for 1-3 year maturity), 42.1% (3-5 year maturity), 40.7% (5-10 year maturity), 33.9% (Total) and if purchase continues at current pace by end of 2018 these figures will be 77%, 81.1%, 69.2%, 59.2% and 61% respectively. So further increase in stimulus means BOJ will reach these figures faster and before 2019 there won’t be enough bonds left between 1-5 years maturity for it to buy.


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