© Investing.com Jeffrey Smith
Investing.com — The world’s most zen central banker may have the last laugh.
Unfazed Haruhiko Kuroda, after returning to a resolutely dovish stance at this week’s policy meeting, said he would not leave the position of BOJ governor within two months without raising rates or otherwise tightening monetary policy. It seems almost certain.
The Bank of Japan has kept its official target rate for government bond yields at 0%, with a tolerance range of 0.5% on either side, in response to widespread expectations of easing control of Japan’s long-term interest rates. Unusually among the world’s central banks where inflation is at his 40-year high, its official short-term interest rate remained below 0%.
The decision sent shockwaves through financial markets, which had expected the BOJ to tighten due to soaring import prices and a weaker yen. They saw the widening of tolerance from 25 basis points on either side of 0% at the December meeting as the first crack in the dam. From there, an unstoppable torrent of speculative capital flooded and the Bank of Japan’s strategy collapsed.
It could still happen, but it’s unlikely before Kuroda takes his coats after some surprisingly weak US economic data this week sapped more momentum from Treasury and Treasury markets. It seems that.
After all, we don’t have to believe that the Bank of Japan’s tightening will make the yen bullish. A more dovish orientation by the US central bank would serve the same purpose. It is enough for the dollar rate forward curve to flatten out and then start falling.
The main thing is that the interest rate differential between the two currencies has narrowed and that is happening. The spread between his 10-year rate in Japan and the US has narrowed slightly since he hit a 32-year high near 152 in October. At 80 basis points, USD/JPY is back above 128, its lowest level in eight months.
ING’s forex strategist Francesco Pesole sees the risk of a further fall in the dollar, but the BOJ remains dovish.
This could force companies to raise wages to appease their workers, and threatens to undermine the BOJ’s hopes that a weaker yen will create enough inflation to banish Japan’s deflationary demons once and for all.
The bank’s new forecasts released this week do not reflect such beliefs. We expect inflation to fall below 2% in the year to March 2024, from around 3% this fiscal year, and remain below that level in the following year. Again, almost exclusively among global central banks, these projections fall short of central banks’ long-term definitions of stable prices.
Therefore, it is inevitable to reaffirm its commitment to buy bonds to boost the economy by stating that it will “continue to expand the monetary base to the year-on-year rate of change in the real consumer price index (all items excluding fresh food).” did not. Over 2%, stably above target. ”
The only hope the BOJ has allowed to speak is that risks to its projections are skewed to the upside.China’s reopening this year will support the external sector through both machinery exports and tourist imports. must. A little less nervous about Japan Corporation’s wage hikes. Japan’s labor market is tight and will continue to tighten, raising inflation expectations.
But Japan has seen many false dawns so far, and skeptics have the right to demand more evidence before accepting the ‘new paradigm’ story. The single biggest support for Japan’s reflation efforts is weakening after what appeared to have peaked some time ago. Kuroda may be the last and least reluctant member of the ‘transition team’ when it comes to central banks, but the odds are growing by the day, and by the time Japan wakes up the nerve to raise rates. , the need to do so may increase. passed.
