BOJ May Push Back Rate Cut Until Later Date: Goldman’s Baba

From the FXWW Chatroom: (Bloomberg) — Bank of Japan may refrain from lowering rates next week due to its economic assessment, timing of FOMC and “considerable risk” in rate cut before ensuring a more stable steepening of yield curve, Goldman Sachs says.
Central bank will probably “seriously” discuss deepening of negative interest rate at meeting next week, but is likely to opt to push back rate cut until a later date, Naohiko Baba, chief economist and former BOJ official, writes in note today
After BOJ raised growth forecast for fiscal 2017 and kept bullish inflation forecast in July outlook report, macro data are unlikely to be weak enough to warrant major downgrade of assessment
In addition, even if the BOJ deepens negative rate, there’s a risk of the FOMC decision nullifying the impact on the markets, especially on the currency
Sees BOJ retaining 2% inflation target due to risk of “severe” appreciation of the yen if scrapped: Baba
It may be “highly likely” BOJ moves toward negative rates as primary policy tool, as QQE is approaching the limits of effectiveness and as central bank sees negative rates as an effective tool to fight against the stronger yen
Possibilities of helicopter money and foreign bond purchases by BOJ as “extremely unlikely”

By Yumi Teso

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