When Doves Cry

The BOJ’s two-day meeting concludes tomorrow. For all practical purposes, there is no chance of a change in policy. At last week’s G20 meeting Kuroda made it clear that the aggressive stance is needed for some time. He was quoted in the papers saying, “There is still a long way to achieve the 2% inflation target, but risks are skewed to the downside.” 

Many observers, looking for any drama whatsoever, have focused on one of the two deputies, who ostensibly could dissent in favor of more easing measures. During his confirmation hearings, Deputy Governor Wakatabe expressed doubts about the BOJ’s forecast that the 2% core inflation target will be reached around the fiscal year 2019. He suggested that the BOJ could ramp up their bond buying, which as you will recall, has fallen to around JPY45 trillion annual pace (from JPY80 trillion) as the BOJ complemented the aggressive asset purchase program with a target for the 10-year government bond. 

If he dissents like many expect, he will join the new board member Kataoka, who has dissented at every meeting since joining in July last year. Kataoka has consistently called for more stimulus. We do not expect him to dissent for two reasons:

First, it is one thing to venture an opinion, but as Deputy, Wakatabe may feel a greater responsibility to support the Governor, in a way that Kataoka does not. 

Second, the dissent means little.  It would not impact policy, and it would not add much to the discourse. 

At the same time, it is important to note that the remaking of the BOJ’s nine-member board has been completed remade under Abe. The old fissure line has shifted from the Shirakawa era of less activist monetary policy tradition resisting the more activist and unorthodox thrust under Kuroda to how aggressive should the BOJ be in pursuing its inflation target. 

As a candidate, Wakatabe was not bound by the BOJ forecasts. As both Yellen and Powell have explained, the Fed does not have forecasts like the BOJ or ECB. The regional Fed Presidents and the each of the governors on the board provide forecasts individually. The median or average is not the Fed forecast despite how it is frequently used.