As the Chief Global Strategist at Mizuho Securities in Tokyo, and a graduate of Columbia University, Shoki Omori is a longtime, dedicated Bank of Japan watcher. This week his skills are being put the test more than ever. BOJ governor Kazuo Ueda has not spoken publicly about monetary policy for nearly six weeks, depriving traders and economists of kind of the comments that help them determine where policy may be heading ahead of meetings. And atypically, none of the major Japanese news outlets have broken stories based on apparent leaks about what the BOJ plans to do this meeting.
Ahead of today’s meeting the yen has pulled off of its recent lows and options trader bets on a BOJ rate hike suddenly jumped this week, reflected in calls by some banks and investment houses who are predicting hikes of 10-15 bps. They are still in the minority but even economists who don’t see a rate hike yet say the BOJ could surprise.
Shoki is not in this camp. Key inflation gauges are rising including for services but this does not change his forecast of no rate hike at this meeting.
”Not really. To be honest, in my view, especially the demand side data in Japan isn’t that strong. Yes, it’s picking up, it’s better than previous quarters,” he says. “But I think as Governor Ueda has been saying, he has been repeating that consumption has been weak. And therefore I don’t see in economic fundamentals the justification for a hike, in addition to a bond purchases cut at the same time in July.”
One policy tightening step everyone agrees will be taken by the BOJ is to cut its monthly pace of bond buying, currently at six trillion yen to 5 trillion yen ($32B). Shoki says it will be important to cut the bond purchases by at least this much if the BOJ hopes to have an impact on the negative yen sentiment that still prevails in the markets - which he expects will not change much now no matter what the BOJ does or does not do at this meeting.
”I just have a feeling that the yen is still going to be weak,” he says. “And going ahead after seeing the BOJ, the FOMC, and possibly the NFP (non-farm payrolls) this week. and if these kinds of events are over, and if investors kind of the policy pass of these major central banks, there’s no need to worry any more (about what the central banks will do next).”
”So therefore, I just have a feeling that the carry trade of dollar-yen, or using yen on the short side, it is going to (still) be so attractive.”
Shoki covers a lot more ground in our interview which will not only help you be ready for the messaging coming from the BOJ’s closely watched economic outlook report, but also for whatever messages Ueda sends at his post-meeting press conference.
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