BoJ: Kuroda’s speech not what it seemed to markets - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the yen strengthened yesterday in response to the speech by BoJ Governor Kuroda yesterday with many viewing his outline of the negative impact of negative interest rates as a sign of reluctance of the part of the BoJ to take further easing measures.

Key Quotes 

“However, the main essence of his speech appeared to be more about acknowledging that there were costs to monetary policy measures but also stressing the need to view these costs against the potential benefits. And Governor Kuroda was pretty clear that the benefits in terms of potentially helping to achieve the 2% inflation goal were far greater.

We are of the view that the BoJ may refrain from easing on 21st September but that additional cuts to the interest paid on reserves will follow, perhaps at the meeting on 31st October/1st November. Of course, like with the ECB, explicit guidance that the ‘Comprehensive Assessment’ will result in additional easing will limit the upside for the yen in response to an unchanged policy announcement on 21st September but yen strength seems inevitable if we are correct and the BoJ fails to act this month.”