BoJ: View to achieve 2% price stability target at the earliest possible time – Goldman Sachs

Naohiko Baba, Research Analyst at Goldman Sachs, suggests that at the next Monetary Policy Meeting (MPM) on September 20-21, the Bank of Japan (BOJ) will conduct a “comprehensive assessment” of trends in economic activity and prices under the current policy framework, as well as the policy impact, with a view to achieving its 2% price stability target at the earliest possible time.

Key Quotes

“We believe the BOJ’s comprehensive assessment has four main objectives: (1) reiterate the positive aspects of its easing policy (quantitative/qualitative easing with a negative interest rate); (2) switch from quantitative easing to a negative interest rate policy (NIRP) as its primary policy tool; (3) correct the excessive impact of the easing policy on the yield curve; and (4) curve excessive market expectations of additional easing by extending the policy timeframe.

We expect the BOJ to retain its 2% target due to the risk of severe yen appreciation if scrapped.

The BOJ will highly likely move towards negative interest rates as its primary policy tool, as quantitative and qualitative easing are approaching the limits of their effectiveness. The BOJ also sees negative rates as an effective tool for combating the strong yen.

We think possibilities of both helicopter money and foreign bond purchases by the BOJ as extremely unlikely.

Although taking interest rates deeper into negative territory is likely to be seriously discussed at the policy meeting, we expect the BOJ ultimately to opt to push back the rate cut until a later date.”