Bank of Japan Governor Haruhiko Kuroda has a big problem. His radical monetary policy experiment has always been aimed at convincing the public that an end to deflation is near – and right now the public aren’t listening.
Concerns that a fresh burst of stimulus would be wasted on households and businesses so far unconvinced by the bank’s foray into negative rates, on top of huge money printing, were among the key factors behind last week’s decision to hold off from further easing, according to sources familiar with BOJ thinking.
“There’s a sense of anxiety spreading in the public about the fact the BOJ is implementing these abnormal policies,” said one of the sources. “That may be behind a lack of public support behind more BOJ stimulus.”
Kuroda stressed that he would deploy all available policy means if the BOJ were to act again, suggesting that any further easing would take the form of another “big bang” measure chosen for its psychological impact on the public, analysts said.
But the decision to hold fire – and the market reaction that drove the yen to an 18-month high – has strengthened the voices of skeptics who argue the BOJ’s experiment has run its course.
At Thursday’s rate review, the BOJ pushed back the timing for hitting its 2 percent inflation target for the fourth time in the past year, as weak exports and consumption hurt growth, giving Kuroda good reason to pull the trigger.
Markets were also pricing in the prospect of further easing, which meant Kuroda risked another bout of unwelcome yen rises and stock price falls by standing pat – which is exactly what happened. [MKTS/GLOB]
But households and companies, still confused about how the central bank’s decision to adopt negative interest rates could help the economy, were in no mood to welcome another round of stimulus just yet, said the sources familiar with BOJ thinking.
That meant using its diminishing policy ammunition now did not make much sense given its likely limited impact on household sentiment, which holds the key to the success of Kuroda’s massive stimulus program, the sources said.