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Goldman Sachs says the Bank of Japan may start tightening, but others disagree


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After the Bank of Japan unexpectedly extended its target range on Japanese government bond yields, economists at Goldman Sachs say the central bank may be late to join its peers. its global economy by moving to a tightening policy.

In a note on Tuesday led by chief Japanese economist Naohiko Baba, the company said: “The BOJ’s greater emphasis on the need to strengthen JGB market activity shows us a high probability that they are will abandon the policy of negative interest rates.”

The BOJ’s currency meeting ended on Tuesday with no change to the current ultra-low interest rate at -0.1%, a stance held since 2016.

The removal of this negative rate policy “could be seen as a desirable next step, especially from a feasibility point of view”, Goldman economists said, adding that the current stance has burden on financial institutions.

Following the BOJ’s announcement, shares of Japan-listed banks rose for two straight sessions, bucking the trend of the broader index that saw another day of losses in Wednesday’s trading. .

Mitsubishi UFJ Financial Corporationor MUFG, rose more than 8% in Japan’s morning trade on Wednesday after rising more than 9% the previous day. Sumitomo Mitsui Financial Corporation also increased by more than 6% and Mizuho Financial Corporation also increased by more than 4%.

We believe today’s surprising decision can be seen as a gift to the new leadership who can pursue opportunities to initiate more legitimate policy normalization.

Masamichi Adachi

Economist of UBS Japan

different motivations

Economists at Nomura disagree and say the move to revise the yield curve control band does not necessarily indicate a change in the BOJ’s monetary policy direction.

Analyst Kyohei Morita highlighted the initial setting of yield curve control policy of 25 basis points either side of the 0% target for JGB yields based on their impact on business investment. fixed or “fundamental elements”.

“Conversely, the new range of around ±0.5ppt is based on considerations other than fundamentals – in other words, a side effect of YCC policy,” he said.

The investment consulting firm said the change in Japanese bond yields was a

“Given that the momentum for the change is not based on fundamentals and the policy rate target is unchanged, we do not think this move by the BOJ should be interpreted as a shift in direction,” he said. tighter policy”. the notes.

Morita said the company expects the Bank of Japan’s policy rate to remain unchanged in 2023.

Oxford Economics agrees that the BOJ’s move is unlikely to mark a hawkish axis.

“We think it should not be construed as the beginning of a tightening process that reflects the achievement of the inflation target,” it said in a note, pointing to comments BOJ Governor Haruhiko Kuroda denied. that the decision is to raise interest rates.

“The Governor also emphasized that he still believes the high inflation is temporary. We share this view and believe that the inflation rate will start to decline from the second half of 2023,” it said.

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Gifts for the upcoming governor

Economists at UBS called Kuroda’s latest move a “gift” to the central bank’s incoming governor to pave the way for a shift after Kuroda’s term ends in April.

“We believe today’s surprising decision can be seen as a gift to the new leadership who can pursue new initiatives,” said Masamichi Adachi, economist at UBS Global Research in Japan. opportunity to begin more legitimate policy normalization.”

While the company had previously expected to see revisions to the BOJ’s policy rate by mid-2023, he added that he “wouldn’t be surprised” if a change was seen as early as January or March.

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