USDJPY Tumbles On Sankei Article BOJ Is Struggling To Reach Policy Consensus

After having dropped all day following the latest set of poor US data making a September rate hike virtually impossible, moments ago the USDJPY snapped lower by nearly 80 pips, tumbling as much as 101.25, as stops were hit, reaching the pari's lowest level since August 26.


Among the reasons cited for the steep drop on trading desks, is that according to an article in Japan's Sankei published just over an hour ago, the BOJ is struggling to form a unified opinion on policy review. The Sankei explains, without saying who provided the information, that policy board members are struggling to reach a consensus position on comprehensive policy review to be released at Sept. 20-21 meeting.

It goes on to say that members are divided between those who support negative interest rates, prioritizing government bond purchase, and others who oppose additional easing measures:

  • Governor Haruhiko Kuroda seen to be a negative interest rate supporter
  • Deputy Governor Kikuo Iwata seen to support expanding monetary base
  • Takahide Kiuchi, Takehiro Sato seen to oppose additional easing

In other words, chaos, with the Sankei concluding that the BOJ likely to debate until final moments on whether to present unified view or list individual positions.

This fits with what Abe advisor Koichi Hamada said in an interview earlier today when according to Bloomberg he suggested that the BOJ should wait until after the Fed decides on interest rates before acting itself, said Koichi Hamada, an economic adviser to Prime Minister Shinzo Abe. Hamada correctly pointed out that the BOJ risks having its efforts overshadowed if it expands monetary stimulus at its policy meeting on Sept. 21 and the Fed then just hours later decides to keep U.S. interest rates unchanged.

“The BOJ should wait for the Fed,” said Hamada, in an interview in Tokyo on Monday. “The present focus of attention is on the U.S. exit policy.”

As Bloomberg adds, a Fed decision to raise borrowing costs would do more to weaken the yen than anything the BOJ would do, according to Hamada, a retired Yale University professor. The BOJ would still have the opportunity to increase stimulus at meetings in November and December.  BOJ Governor Haruhiko Kuroda will want to avoid a repeat of what happened in January, when he introduced a negative interest rate only to see the yen strengthen as part of a global flight to safety.

Previously, in a speech delivered by Kuroda on Monday, BOJ governor Kuroda called for a comprehensive review of the BOJ’s monetary policy for the board to consider at its September meeting. Specifically, he signaled a willingness to bolster already record levels of stimulus and undertake new measures. Hamada said the BOJ should refrain from cutting the negative rate further for now because it has already had some negative effects on the banking industry and hurt household sentiment.

The market's reaction to the speech was negative, sending the Yen higher as Kuroda failed to indicate a firm commitment to any specific policy, something the Sankei story has validated.

Further weakening the dovish case, was another report according to which PM Shinzo Abe told reporters at the close of a Group of 20 meeting in Hangzhou, China, late on Monday that foreign bond purchases are illegal under the Bank of Japan Law if they are meant as a form of currency intervention, which means that the plan floated by Hamada to buy foreign bonds will likely not be implemented in the near-term, if at all.

What is more curious, based on the latest Hamada's comments, is that not only is the BOJ no longer data - or even market - dependent, but is entirely reactionary, and its policy will be driven almost entirely by what the Fed will do prior to the Bank of Japan's own decision has to be made. 

In short, the BOJ has lost control of its own monetary policy, and is forced to respond to any and every announcement and action by the Fed.