A weekend item from Reuters with a look inside the easing decision that surprised markets back on October 31, based on interviews with nearly a dozen insiders and government sources – Kuroda sprang easing surprise to head off damaging inflation forecast
In brief:
- Bank of Japan (BOJ) Governor Kuroda “sprang” the easing on his own board members just two days earlier
- He did this to “jolt” them and stop them making a low-ball inflation forecast
- Kuroda and right-hand man Masayoshi Amamiya kept only a handful of central bank bureaucrats in the loop
- Didn’t give the usual forewarning to senior bureaucrats at the Ministry of Finance
- Timing was critical – and not of his choosing. At the policy meeting the board would also issue a new consumer inflation forecast for the next fiscal year, based on the median estimate from the nine members. But two days before publication, the preliminary estimate was only around 1.5 percent, three of the sources said. That was well below the 1.9 percent forecast made in July, and if published could have been fatal to his key goal of hitting 2 percent from April next year. Since price expectations play a key role in the consumer behaviours that ultimately determine prices, doubts about the target could be self-fulfilling.
Other triggers for action:
- Plunge in oil prices
- Easing burst would have more market impact in the week the U.S. Federal Reserve decided to turn its own liquidity taps off
More at the link (above)
