Bank of Japan Governor Kazuo Ueda
TOKYO: A less-distorted bond market, continued weakness in wages and the threat of an early election are among the reasons the Bank of Japan (BoJ) is expected to keep policy unchanged at this week’s gathering.
Governor Kazuo Ueda has also repeatedly signalled his intention to take time before making any major changes to the central bank’s stimulus.
Bloomberg reported last Friday that BoJ officials see little need to change the central bank’s control of yields at the meeting due to the improved functioning of the Japanese government bond (JGB) market, according to people familiar with the matter.
That’s left both market players and economists largely in agreement that the BoJ won’t move in June, though views start to diverge on the trajectory of the policy after that. A third of economists polled by Bloomberg see the BoJ moving next month.
“The central bank probably wants to delay any policy change to later this year or even longer, given that there’s no urgency at all in the market, unlike a while ago,” said Jun Kato, chief market analyst at Shinkin Asset Management Co in Tokyo.
A BoJ survey of banks and investors showed this month that JGB market functioning has improved since hitting a record low in February.
A kink in the yield curve and a lack of liquidity were key factors behind the BoJ’s shock decision in December to raise its cap on benchmark yields, a move that triggered a wave of speculation that more change was in the pipeline.
But yields on Japan’s 10-year government debt have stayed below the 0.5% ceiling since March, and the BoJ was able to scale back its debt purchases to 7.4 trillion yen (RM245bil) last month from a record 23.7 trillion yen (RM1 trillion) in January.
A Bloomberg gauge of the gap in actual yields compared with their estimated values, a measure of market liquidity, has fallen close to its lowest since August.
That suggests liquidity is ample enough to limit any market dislocations and takes the pressure off the BoJ to act.
Speculation continues to smoulder that Prime Minister Fumio Kishida will call an early election to capitalise on a bump in public support following the hosting of Group of Seven leaders and Ukraine President Volodymyr Zelenskiy in Hiroshima last month.
As Kishida’s pick to helm the BoJ, Ueda may be reluctant to consider any tweaks to the policy that could disrupt markets and reflect badly on the premier while there is election talk in the air.
Still, 40% of polled economists said a snap poll wouldn’t get in the way of policy adjustments.
On the economic front, while inflation remains well above 3%, growth in Japanese pay packets continues to lack the strength needed to stop household spending power from falling in real terms.
The latest figures released last week showed cash earnings rising just 1% from a year earlier. That trend suggests the BoJ is still some distance from achieving its goal of sustainable wage-driven inflation.
Ueda has warned that moving too quickly presents a greater risk to the chances of securing stable inflation than being behind the curve.
He voted against a tightening move that proved premature back in 2000, when he was a BoJ board member during the first years of Japan’s deflationary malaise.
The governor can probably afford to wait in the short term as pressure on global peers for tighter policy remains data-dependent. — Bloomberg
