From a research note by Nissay Asset Management's (part of Nippon Life Group) general manager of fixed income investment, Eiichiro Miura
The note says that the BOJ is likely to keep current yield curve control (YCC) policy until the introduction of a consumption tax hike in 2019.
Miura argues that "it may be inappropriate to change its policy as it could provide a shock to financial markets ahead of the scheduled consumption tax rise".
Further adding that the BOJ could face strong resistance from the political side as well on the matter. The note also says that the BOJ would want to follow the Fed's path by initially reducing debt purchases before raising rates and that the BOJ is already starting "stealth tapering" and is likely to continue.
"Rather than raising rates, there is a bigger possibility that the BOJ will reduce ETC purchase volumes", Miura says.
Well, it's an interesting take on the BOJ's possible path in normalising monetary policy but given the timeline and current price trends, it's not likely the BOJ will be in a position to be able to change its YCC policy with or without the tax hike that is to come.
In my view, Kuroda's reappointment will see the BOJ maintain its current stance and language for the next year or so. But eventually, it's something that will have to change especially if Japanese prime minister Abe wants to drive the economy forward and away from the deflation mindset.
