Forex Flash: Mr. Kuroda as dovish as expected - Nomura

Nomura Strategist Yujiro Goto notes that BOJ governor candidate Mr. Kuroda today showed his dovishness at a confirmation hearing in the lower house.

He feels that Mr. Kuroda emphasised that the BoJ would do whatever it takes to end deflation. Additionally, he kept his critical stance on previous BOJ monetary policy as expected, by stating that the cooperation between the Bank and government has been not sufficient and that decisions to end quantitative easing in March 2006 and zero interest rate policy in August 2000 were clearly wrong in hindsight. Goto also adds that he also stated that he would aim to meet the inflation target in two years and that communication with the market would be important as there is limited room for lowering interest rates. These comments are not surprising from his previous remarks.

Goto continues to explain that Kuroda also suggested that he would consider the following policy options as possible tools: start buying longer-term JGBs, purchase a wider range of assets, an earlier start to open ended purchases, and revise the bank note rule. he also ruled out the possibility of foreign bond buying by the BoJ, as it is difficult under current international circumstances. At the same time, Goto writes, “he indicated currencies can depreciate if central banks ease monetary policy. These policy options are well expected by FX investors and thus, the impact of his speech was relatively muted.