BOJ Reduces Growth, Inflation Expectations

Shawn Baldwin analyzes recent rate decisions by the Bank of Japan

BOJ Reduces Growth, Inflation Expectations
Shawn Baldwin, Chairman, AIA Group at the Bank of Japan

(Tokyo, Japan) The Bank of Japan (BOJ) displayed its continued faith in monetary stimulus by ‎deciding to maintain its bond buying program, which means it will buy 80 trillion yen (USD) of bonds a year. Takahide Kiuchi, a longstanding hawk, dissented, preferring to shrink the size of the purchase program. BOJ Governor Haruhiko Kuroda , substantiated his decision to maintain the current level of stimulus, by stressing that the BOJ was endeavoring to stimulate the economy. Kuroda also conceded that rests were less than he had hoped.


Mr Kuroda has emphatically advocated that Japanese companies change their current pricing bias against inflation and outlined the virtuous cycle occurring between wages and spending.

Some analysts had expected a potential increase in bond buying at the October meeting to‎ support the 2nd arrow target of “Abenomics” -inflationary growth. Abenomics is the the program that Prime Minister Shinzo Abe deployed to get Japan out of the deflationary doldrums it has been in over the last few decades. To a large degree the plan has been working.

While the core inflation has been steadfast at virtually zero there have been promising signs of progression as the forecast growth was downgraded to 1.2%, the Gross Domestic Product (GDP) has increased since 2013 after a (20) twenty year period of sideways stagnant pattern. Correspondingly, the BOJ cut its inflation forecast for the current fiscal year from 0.7% to 0.1% . General consensus doesn’t expect the bank to hit its 2% inflation target until the start of 2017. Economic data released in September, showed a also putting a damper on results declaring a renewed slide in household consumption.

In terms of positive news, Japan’s unemployment rate stayed firm at 3.4% while the ratio of jobs to applicants category increased to 1.24%, suggesting continued tightness in the labor market.

Investors should target Japanese equities as company profits have been the largest beneficiaries of the policies so far. A cascade of money will continue to drive growth domestically‎. This in turn, will drive additional corporate investment which will accelerate Japanese equities, as could be evidenced Topix share index which moved up dramatically 11 points at 1,558.

However, currency speculators should take some caution and not expect these actions to drive the yen lower, the contrary will hold true–a strengthening yen will be the by product.

About the author

Shawn D. Baldwin is Chairman of the AIA Group (AIA), an alternative investment and advisory firm based in Chicago.