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Goldman On BOJ's Banzainomics: "We Highlight The Potential For Harsh Criticism Of Further Cost-Push Inflation"
It was about several months ago when Goldman, which initially was an enthusiastic supporter of BOJ's QE, turned sour on both Abenomics and the J-Curve (perhaps after relentless mocking on these pages), changed its tune, saying an unhappy ending for Abenomics is almost certainly in the cards.
Not surprisingly then, in its post-mortem of the BOJ's overnight action, already being affectionately called Banzainomics, is hardly glowing, and is summarized as follows: "We maintain our view that unless the yen continues to depreciate significantly, as a result of the latest QQE action, the BOJ is unlikely to meet its scenario for inflation to stably reach 2% during FY2015. From a political perspective, with nationwide local elections looming in April 2015, we also highlight the potential for harsh criticism of further cost-push inflation driven by the weaker yen among nonmanufacturers, SMEs, and households. Irrespective of the latest easing moves, we believe the BOJ is treading a very narrow path."
Full note from Goldman's Naohiko Baba:
Further QQE and move to a fully open-ended easing program
The Bank of Japan announced further quantitative and qualitative easing (QQE) action at its Monetary Policy Meeting on October 31 (Exhibit 1). It also officially removed the 2-year timing target for achieving 2% price stability, making the timeframe completely open ended (by a vote of 5 to 4). While the latter announcement was within the scope of our expectations, the first came as a surprise (we had assumed further easing action would be announced in January 2015). The additional QQE measures are as follows:
1. Pace of monetary base increase will be stepped up by ¥10 tn-¥20 tn per year, to around ¥80 tn per year.
2. Long-term JGB purchases will be stepped up so that the outstanding JGB portfolio will increase by around ¥80 tn annually, an acceleration of around ¥30 tn. The average remaining maturity of the BOJ’s JGB purchases will be extended to 7-10 years (extension of a maximum 3 years). In addition, the outstanding ETF portfolio will be increased at an annual pace of ¥3 tn, tripled from the current pace of ¥1 tn, and annual REIT purchases will triple to ¥90 bn, from ¥30 bn. The JPX-Nikkei 400 index is newly added to eligible ETF purchases by the BOJ.
BOJ sharply lowers Outlook Report FY2014 growth forecast
In the biannual Outlook Report published today, the BOJ sharply lowered its FY2014 real GDP growth forecast to +0.5% yoy, from +1.0%, in line with our expectation. It only made minor revisions to its price outlook, however, adjusting its CPI forecast to +1.2%, from +1.3%, for FY2014 and to +1.7%, from +1.9%, for FY2015. It therefore maintained its scenario that inflation is likely to reach around 2% sometime in FY2015 (Exhibit 2). We believe the bank has factored the impact of the additional QQE mentioned above into its outlook.
Further easing to stop inflation expectations receding
However, in the risk assessment section of the Outlook Report, the BOJ noted that risks to its price outlook are to the downside. It explained that sustained weakness in post-tax-hike demand and downward price pressure from the decline in crude oil prices could pose a risk of delayed improvement in inflation expectations that could create downside risks to prices per se. It said it had taken additional QQE measures to prevent the risk of a delayed turnaround in deflationary mindset from materializing. Although denied by Governor Kuroda at the press conference, we think the bank may have sought to give its support to a second consumption tax hike (slated for October 2015, decision to be taken early December) at a time when increasing number of voters as well as politicians are expecting the timing of the next tax hike to be pushed back. Amid a slew of weak macro data following the April tax hike, we think the Japanese government has a strong desire to lift share prices as far as possible and thereby improve corporate and household sentiment to make it easier for Prime Minister Abe to commit to a second tax increase. In our view, it is no coincidence that GPIF portfolio changes (lowering of domestic bond allocation, increase in equity allocation) and the BOJ’s adding easing measures were announced the same day.
Attaining 2% price stability target still looks very challenging
Prices have trended broadly in line with our outlook over the past six months or so. The September national core CPI, announced today, slowed to +1.0% yoy and has now reached the bottom end of the previous assumption of the BOJ’s 1.0%-1.5% range. With the October Tokyo core CPI also slowing further, crude prices trending downward and the post-tax-hike economy weakening more than anticipated, we think the CPI could dip below +1.0% near term. We maintain our view that unless the yen continues to depreciate significantly, as a result of the latest QQE action, the BOJ is unlikely to meet its scenario for inflation to stably reach 2% during FY2015. From a political perspective, with nationwide local elections looming in April 2015, we also highlight the potential for harsh criticism of further cost-push inflation driven by the weaker yen among nonmanufacturers, SMEs, and households. Irrespective of the latest easing moves, we believe the BOJ is treading a very narrow path.
Exhibit 1: BOJ expands monetary easing
BOJ Quantitative and Qualitative Easing
Exhibit 2: BOJ sharply lowers Outlook Report FY2014 growth forecast
BOJ Outlook Report
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Banzainomics anyone?
Fleecing the Nippon Muppets?
Is anyone watching the Belgiums?
Buy PMs now and break the bank!
Holy shit! PMs waterfalling. The end is near.
Done. Bought a little last night then found the price even better this morning so I bought more. Gotta shift the budget around a bit but can't let these prices go past.
Tennouheika Banzai!
http://www.history.com/topics/world-war-ii/world-war-ii-history/videos/k...
ass of an ass on his emblem... sublime
if goldman told you to jump off a bridge would you do it?
Abe: Yes
Abe shall do it twice as a good kamikadze
Pretty sure Abe's answer is more along the lines of "I'd cup the balls, swallow it all down, then jump".
To put it into a Haiku:
An if still brigde...
A bottom already into the jump,
the! the again.
Central banks of the world unite. Japan's turn for the QE hot potato. This could go on for very long time.
until it couldn't and people can't buy food or food stamps.
Dude........food stamps are totally free.
dude... someone still pay for them like a government. you can't make food like you can make money now from air
You're doing it wrong.
http://www.youtube.com/watch?v=xLTTX35LNJo
The beauty of the "narrow path" the BOJ has been teading in, it gets steeper after each liquidity injection. So far, they have been able to traverse it with ninja like precision, but they have reached cliff mode and one miss-step and......splat. Hope you brought your wingsuit Abe.
Jim Morrison put it best
http://www.youtube.com/watch?v=JSUIQgEVDM4
Right and elections still matter?
This is all so idiotic, myopic and in complete disregard for the interests of the 99% of the japanese population that you have to conclude that it is a corrupted decision, at the highest level.
I prefer the term Kamikazenomics.
What's going on here with the BoJ is no different than flying manned airplanes into ships in a last ditch effort to save your country from certain defeat.
Krugman will be pleased
"if you haven't seen it work, it's because you haven't gone far enough"
This article should be called: "Goldman publicly distances themselves from Japanese policies prior to Govt collapse."