BoJ: Change of tune – ING

Robert Carnell, chief economist at ING, suggests that the BoJ’s prospect of change in policy in 2019/20 seems to have evaporated, with Governor Kuroda talking down policy change prospects.

Key Quotes

“In compiling a list of what has changed to deliver this abrupt change of view from the BoJ, from the perspective of the Japanese domestic economy the answer is "not much". Sure, on paper, the third quarter looks a disaster, with an annualised 2.5% contraction. But bear in mind that Japan was hit by a genuine natural disaster, earth's most powerful storm of 2018 at the end of the third quarter, causing floods and massive infrastructure damage and, as a result, the domestic picture actually looks less worrying.”

“Natural disasters are of course awful. But from a GDP perspective, their negative impact tends to be fleeting, with the more medium-term effect of clear up and rebuilding / replacement rather positive. So in fact, the growth outlook for 4Q18  and the following few quarters is actually better than it was.”

“The yen is appreciating against the USD and Kuroda is now trying to talk down normalization expectations to limit the currency fallout. We suspect he might have his work cut out, especially if the USD embarks on a generalized weakening next year - which we think it will.”