Artificial intelligence predicts BOJ policy on hold this week



The list of areas in which the machines are beating humans can now be expanded to include predicting the Bank of Japan’s next moves.

As analysts search for portents as to whether the BOJ will follow the European Central Bank in pursuing still more monetary stimulus, those at Credit Suisse Group AG and Nomura Securities Co. are turning to the oracle of artificial intelligence for assistance.

Both banks introduced computer algorithms at the end of last year to analyze the mountains of text produced by the central bank in the hope of gleaning insights into the direction of its policy.

Thus far the results augur well. Despite the fact that most experts surveyed did not see the bank adding stimulus in October 2014, economists at Credit Suisse say their index pointed to a “high chance” of additional easing, and Nomura’s analysis shows that sentiment in the bank’s statements was falling prior to the decision.

They also got the policy direction right a year later. Ahead of the October meeting last year when almost half of surveyed analysts were saying that the bank would add to easing, Nomura showed that sentiment was improving, while Credit Suisse saw a “very limited chance” for more stimulus.

The current projections of both are that Gov. Haruhiko Kuroda and colleagues are on hold.

The index “does not suggest any imminent action,” Hiromichi Shirakawa, chief Japan economist at Credit Suisse in Tokyo, said in an email.

At Nomura, economist Yoshiyuki Suimon said its latest readout “doesn’t support additional monetary easing at present from the view point of economic sentiment.”

Credit Suisse tracks the correlation between keywords for prices and those that indicate concern. In November, that meant trawling through millions of words, including BOJ publications such as the policy statement and speeches by Kuroda.

In its latest review, the Credit Suisse program found the BOJ had slightly upgraded its assessment of exports, found producer prices had risen at a slow pace for processed foods and investment-related services and spotted an acceleration for some clothing of consumer prices.

“The changes are thus mixed overall, which is consistent with our index showing no significant change in the BOJ’s direction,” Credit Suisse said in a Jan. 26 report to clients.

To Shirakawa, such a call makes sense given that inflation excluding energy has proved resilient.

“If the bank moves this week, it implies some departure from its philosophy of looking at ex-energy price trends when deciding monetary policy,” he said. “Ex-energy inflation will go down materially into autumn and it will be a bigger problem for the bank if it has run out of bullets by then.”

Still, machine is not quite ready to replace man. Credit Suisse says its index is volatile and only useful in predicting change in the next one to two months. Neither index has been updated to include statements from January.