Bank Of Japan Leaves Policy Unchanged As Expected - Admits Defeat On Deflation

Japan's long and sordid dance with unconventional monetary policy continues. With most analysts expecting a 'nothingburger' from Kuroda (though some hinting at the potential for shock-and-awe), The BOJ delivered... nothing - no change. However, most critically, the BOJ admitted defeat of deflation and delayed the timing of reaching their 2% inflation goal to around FY2019.

No change to policy:

  • BOJ Maintains 10-Year JGB Yield Target at About 0.000%
  • BOJ Maintains Policy Balance Rate at -0.100%
  • 80 trillion yen target purchasing remains in place


BOJ Raises Assessment of Economy - FY2017 GDP forecast is 1.8%, FY2018 GDP Forecast Is 1.4%, FY2019 GDP Forecast Is 0.7% - But sees risk skewed to the downside.

Growth to Continue Above Potential Through Fiscal 18


Japan Economy Likely to Continue Moderate Expansion


Risk to Economy, Prices Skewed to Downside

BOJ Delays Timing of Reaching 2% Goal to Around FY2019 - BOJ FY2018 Core CPI Forecast Is 1.5%

"Around FY 2019" means in the year ending March, 2020. So the board probably won't have to revisit this issue for quite some time.


Price Momentum Not Yet Sufficiently Firm


Inflation Expectations Remain in Weakening Phase

As Bloomberg's Chief Asia Economics Correspondent noted, the statement reads very dovish to me. An impartial observer landing from Mars could only conclude the BOJ's massive stimulus has a long way to go yet.


The BOJ's distorting effect in the stock market is in focus today, after Bloomberg scoops on concerns among BOJ officials and the head of Japan's stock exchange with the scale of ETF purchases.

While policy is held unchanged, The Bank of Japan has tapered its purchases without spooking investors into thinking its scaling back stimulus - by switching to the yield-curve target as its priority.

But with ETFs, there's no obvious bait-and-switch option to change the focus from what's now solely a quantitative target. It's very hard to see the BOJ adopting, for example, a stock-price target in the way that it now targets yields.

Equity markets were, of course, unphased by the BoJ meeting with volatility at 12-year lows:


Finally, Bloomberg Intelligence economist Yuki Masujima warned that a big risk ahead for BOJ after two board members leave this week is tunnel vision. Takahide Kiuchi and Takehiro Sato routinely challenged the policy board's consensus, and their successors are less likely to oppose Kuroda.

"The BOJ may start to suffer from a worse case of groupthink at the very time a diverse set of opinions will be needed to inform policy."

As a reminder, Takenobu Nakashima, quantitative strategist at Nomura Securities in Tokyo, warned "core-core CPI is also hovering near zero so the BOJ can't reduce bond buying or raise zero percent target for 10-year yield."

Reaction from Stephen Innes, a Singapore-based senior trader at foreign exchange company Oanda:

"I suspect other central banks are quite happy for the BOJ to refrain from a policy shift at this time given such an outcome could spark a global bond market mini-tantrum."


"Mixed reaction as the market on sidelines awaiting the follow-up presser."


"Kuroda is likely to be bombarded again with questions about the bank’s exit policy at his post-meeting press conference. Whether we hear a case of central bank verbal gymnastics to avoid the problem or he provides some guidance, the reality is the low level of inflation makes it highly unlikely he will stir the pot publicly even if such discussions are going on behind closed doors."

Social media is not impressed...


Yen Cross Stormtrooper Wed, 07/19/2017 - 23:53 Permalink

 The return on any additional yen printing, is actually deflationary.  Abe has crossed the Rubicon, when it comes to ROI.  There comes a point where adding extra currency to the system, actually clogs it up, because the input pipes can't handle the flow.   stagflation   Japan has only one alternative< tighten, or watch your currency explode weaker. Kyle Bass was correct, and that trade is just about to happen. The offset, will be a massive lunge higher in $usd. eur/jpy is going to normalize.

In reply to by Stormtrooper

Freedumb Thu, 07/20/2017 - 00:11 Permalink

If you guys really want some ideas on how to create inflation I have a way in mind that can ramp it up to 2000% really quickly, please call me to discuss my rates**Rates to fluctuate daily based on results

Mikeyyy Thu, 07/20/2017 - 00:46 Permalink

"Best desert island trade - shorting yen"   Apparently this guy never heard the old Keynes maxim - Markets can remain irrational longer than you can remain solvent.  

ds Thu, 07/20/2017 - 01:43 Permalink

Why the surprise ? All major CBs are out of options to taper. They have to stay co-ordinated in order not to upset global equity/bond markets. The consequence is a falling Yen. Japan ahead of the crowd that will have to take the prices of its own currency from global traders. They cannot even get a 2% inflation for its record breaking debt/GDP. Demography is not a challenge for the aging who can handle deflation. The debts in Yen can never be repaid and will continue to weigh down on the Yen. 

Batman11 Thu, 07/20/2017 - 07:37 Permalink

The Central Bankers strategy relied on trickle down, but it didn’t exist and inflation never picked up.Central Banks flooded the markets with liquidity to create a “wealth effect”.Central Banks waited nine years and found nothing had really trickled down; inflation was going nowhere.All the stimulus has gone into asset price inflation and artificially inflated asset prices will just crash when the liquidity supply dries up.The Central Banks have disproved the trickledown theory and set up the next crash.How do they get the stimulus to consumers to create inflation?

Batman11 Batman11 Thu, 07/20/2017 - 07:38 Permalink

Keynes noted a similar effect in the 1930s and called it a “liquidity trap”.The wealthy and businesses will hoard their money and not invest until demand picks up.The economy is demand driven, contrary to the belief of Central Bankers.There was an approximation to a supply driven economy when credit was almost unlimited before 2008, but those days have gone.Keynes had a solution, the “New Deal”, to create jobs, wages and demand.

In reply to by Batman11

chuckymcgee Thu, 07/20/2017 - 14:05 Permalink

To fix deflation: 1. Start printing money like crazy2. Pay off your debt3. Make super ridiculous infrastructure4. Pay Japanese families with 3 kids insane bonuses5. Start buying up other countries That should fix your deflation. If it doesn't, you'll at least own the world.