Japan: Kuroda speech lifts yen - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that with the BoJ’s Comprehensive Assessment of monetary policy currently taking place ahead of the next policy meeting on 21st September, the speech today by Governor Kuroda in Tokyo was always going to be in full focus for the financial markets.

Key Quotes

“The fact that Governor Kuroda gave a portion of his speech to outlining the negative impact of lowering rates below zero percent helped ease speculation of further cuts to the key policy rate and helped lift the yen.

However, those comments were in the context of Governor Kuroda explaining that “there is no free lunch” and that even though certain policies may have costs, if the ultimate benefit is achieved (higher inflation) then the negative impact of negative rates is acceptable.

Governor Kuroda also appeared to address specifically the speculation in the market that the BoJ may decide to slow the pace of JGB purchases by stating there would be no reduction in monetary stimulus as was “being called for by some market participants”.

We are maintaining our view that additional rate cuts will be forthcoming by the BoJ but not necessarily at the meeting on 21st September and with expectations so high there is certainly a clear risk of another surge of the yen on disappointment in the aftermath of the policy meeting this month.”