Business / Financial Markets | ANALYSIS

After BOJ shocks market, some ask why it gave no warning

by Toru Fujioka


Hours after the Bank of Japan caught central bank watchers off guard by boosting stimulus, officials were fending off complaints about its communications.

A meeting on Oct. 31 with about 50 analysts and economists on the BOJ’s new outlook ran on for two hours — twice the usual time — as the discussion turned to how well Gov. Haruhiko Kuroda and other officials telegraphed their views before the decision, said people who were present.

The questions came like a torrent, with some complaining about the BOJ’s bond purchase plan and its communications with the market, according to analysts who asked not to be named as the gathering was private.

While Kuroda said he did not intend to surprise anyone with the decision to bolster already-unprecedented easing, springing the news on the market added to the punch.

The risk for Kuroda is that he may undermine the BOJ’s credibility with the people in the market who count on central bank officials for clear and timely communication.

“We shouldn’t take Kuroda’s comments at face value,” said Noriatsu Tanji, chief rates strategist at RBS Securities Japan Ltd. “He offered a completely different view from what he said just three days earlier. Instead of listening to Kuroda, we should look at prices and the distance to the BOJ’s inflation target.”

Officials at the bank were not immediately able to comment on the Oct. 31 briefing.

The Topix index on the Tokyo Stock Exchange soared 4.3 percent on Oct. 31, the most in 16 months, on news of the BOJ’s easing. The yen dropped as low as 112.48 per dollar, its weakest since December 2007. Just three of 32 analysts surveyed ahead of the decision had forecast additional easing.

The BOJ typically briefs economists and analysts every three months when it releases forecasts for economic growth and inflation.

The Oct. 31 meeting, which included economists and analysts of the bond, stock and foreign exchange markets, was the longest since Kuroda took office in March 2013, some of those present said.

It was even more lengthy than a briefing following the decision in April last year when Kuroda introduced record stimulus.

Officials did not call an end to last week’s gathering, unlike previous ones, the analysts said.

Shinichi Uchida, head of the BOJ’s monetary affairs department, and Kazuhiro Masaki, head of its policy planning division, attended the meeting, according to the people.

One analyst said that when Kuroda eased in April last year they knew something big was coming, while this time the governor gave little indication that anything was in the works, instead repeating his optimism on the economy.

In the months preceding last week’s decision, Kuroda repeatedly said the BOJ would not hesitate to adjust policy should risks threaten its inflation target.

At the same time, he gave an upbeat view on prospects for the economy and achieving the bank’s inflation goal, even as April’s consumption tax increase and a tumble in oil prices caused some economists to doubt this picture.

Kuroda stuck to the same message three days before the BOJ’s Oct. 31 announcement.

“Japan’s economy has been on a path that suggests that the 2 percent price stability target will be achieved as expected,” he said in the Diet on Oct. 28. “Japan’s economy has continued to recover moderately as a trend.”

Kuroda also said the BOJ will take appropriate action if adjustments to policy are needed.

The central bank on Oct. 31 cut its estimate for growth in half for the current fiscal year through March and lowered its inflation forecast for the following year to 1.7 percent, based on median projections of the nine board members.

Explaining the change in policy, Kuroda said at a news conference that the BOJ saw a risk of a delay in changing the “deflationary mindset” in Japan given the impact of the consumption tax hike and falling oil prices.

“The BOJ may not be trying to trigger a surprise, but their bullish stance on the economy is a bit too much and from the market’s perspective it doesn’t look honest,” said Takuji Okubo, an economist at Japan Macro Advisors. “When a central bank creates doubt over whether it’s accurately assessing the economy, it hurts its credibility and increases volatility in expectations.”

Coronavirus banner