BoJ: No shift in Japan's monetary policy - BBH

At Davos, BOJ Governor Kuroda did not announce a shift in Japan's monetary policy and what drew a sharp market reaction was Kuroda's comment that it was finally getting close to its inflation target and that wages were beginning to rise, explains the research team at BBH. 

Key Quotes

“The BOJ targets core CPI, which excludes fresh food, at 2%.  Several hours before Kuroda spoke, Japan reported that the December core CPI rose 0.9%, the same as in November.  In December 2016, it stood at minus 0.2%.”

“Kuroda suggested wages might have begun rising in Japan.  This could be true, but the aggregate data on labor cash earnings does not show it.  The 2017 year's average year-over-year rate is 0.4%.  The 2016 average was 0.5%.  In 2015, the average was 0.2%.  There does seem to be something happening though.  Hourly cash earnings of non-regular workers have accelerated while regular workers continue to experience weaker earnings growth.”

“Kuroda was explaining to an international audience that its Qualitative and Quantitative Easing and Yield Curve Control strategies were yielding desirable results.  He indicated a few days earlier in favor of patience and perseverance.  Just as it is showing results is not the time to abandon the course.  Nothing Kuroda said suggests that investors should change their views on the trajectory of BOJ policy.”

“Thus far, Japanese bond yields have withstood the rise in other G7 countries yields.  For example, over the past three months, as US and German 10-year yields have risen by roughly 25 bp, the yield on the 10-year JGB has risen 0.3 bp.  At the short-end of the coupon curve, Japan's yields are even more resilient.  The US two-year yield has risen 53 bp over the past three months and the German yield is up 21 bp.  The two-year JGB yield is up almost three basis points.”