Muted reactions to BoJ communication - Nomura

Analysts at Nomura explained that there has been a muted reaction to BOJ communications.

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Key Quotes:

"BOJ Governor Kuroda commented today in parliament that the current pace of JGB purchases is around JPY60trn on an annualised basis. 

At the press conference after the previous meeting, he said that actual bond purchases go up and down depending on the market under the Bank’s yield curve control policy, when he was asked whether the BOJ would maintain its “around 80 trillion yen” commitment.

Thus, his comment on the specific number today is interesting. However, this is unsurprising as the Bank has been reducing its JGB purchases gradually. Governor Kuroda also emphasised again that the amount of JGB purchases can vary to implement the yield curve control policy, and the amount is a dependent variable now, downplaying the importance of the amount of JGB purchases. In fact, the market reaction to the comments was limited. 

The BOJ will gradually reduce its amount of JGB purchases (with the short-term up and down as the yield curve moves), while it likely wants to avoid increasing market volatility when communicating the smaller amount of JGB purchases. Today’s muted reaction is good news for the BOJ, and lower volatility should encourage Japanese investment in foreign assets. 

Governor Kuroda’s view on fundamentals remains largely unchanged, as he reiterated that risks have continued to be skewed to the downside. He also reiterated that there is still a long way to go to meet the Bank’s 2% price target, and he said it is challenging to hit 2% inflation and stabilise it. 

The Bank is still unlikely to consider tightening anytime soon, as current inflation momentum remains weak. This is in strong contrast with the ECB’s policy stance, as the ECB communications will likely be less dovish. Monetary policy divergence should put further upside pressure on EUR/JPY."