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Research Japan: Bank Of Japan Is Turning Into A Dove‏

ByDanske Markets
Published 11/19/2012, 01:26 AM
Updated 05/14/2017, 06:45 AM

With the expiry of terms of Bank of Japan (BOJ) governor Shirakawa and his two deputy governors next year, a new LDP-led government will have ample room to influence the policy direction of BoJ next year. This is expected to push the balance on the BoJ board decisively in favour of the doves in 2013.

The main candidates to become new BoJ governor are Toshiro Muto and Kazumasa Iwata. Both have more dovish views than the current BoJ governor and particularly Iwata would be a very dovish choice. Iwata wants a higher inflation target and sees a weaker JPY as necessary for combating deflation.

BoJ has already stepped up QE substantially and with a more dovish board the pace of asset purchases could be increased in 2013 and continued into 2014. We expect the maturity of BoJ's government bond purchases to be raised in 2013 and it now also looks increasingly likely that BoJ's inflation target will be raised from 1% to 2% at some stage next year.

Monetary policy in Japan no longer appears to be trailing other major central banks and BoJ and looking ahead BoJ could possibly ease more aggressively for longer than other major central banks. This should support a weaker JPY.

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