Bank of Japan chooses to swim against the tightening tide - Wells Fargo

Analysts from Wells Fargo, believe that the Bank of Japan will remain committed to its accommodative monetary policy measures for now even as the Federal Reserve, European Central Bank and others tilt in a more hawkish direction.

Key Quotes: 

“As the Federal Reserve made the historic decision to begin unwinding its balance sheet, the Bank of Japan quietly elected to keep its cocktail of stimulus programs unchanged in an 8-1 vote, with the lone dissent coming for dovish rather than hawkish reasons. The move comes amid a broad shift in sentiment by many of the world’s other major central banks as economies in the developed world have begun to accelerate in tandem, lessening the need for the extraordinary monetary policy stimulus adopted over the past few years.”

“Economic growth in Japan has actually been relatively strong in recent quarters, at least by Japanese standards. Japan’s economy expanded at an annualized pace of 2.5 percent in the second quarter, and in so doing it extended the number of consecutive quarterly expansions to six—the longest winning streak in more than a decade. Our fullyear forecast for real GDP growth in Japan is 1.9 percent, which would be the fastest pace since 2013."

The key challenge for the Bank of Japan is the continued lack of inflation. The consumer price index (ex-fresh food) in Japan was up just 0.5 percent year-over-year in July, and prices were in deflationary territory ex-food and energy. The BoJ is steadfast in its commitment to achieving what has been a fleeting objective for a generation: sustained inflation of 2 percent. Japan has struggled with slow growth and inflation more than most other advanced nations, and as a result its central bankers are resolutely committed to banishing its deflationary demons. Thus, we believe the BoJ will remain committed to its accommodative monetary policy measures for now even as the Fed, European Central Bank and others tilt in a more hawkish direction.”