BOJ has a greater communication challenge - BBH

Research Team at BBH, suggests that the BOJ has a greater communication challenge as it has struggled to shape market expectations.  

Key Quotes 

“The DNA of the institution was not traditionally activist.  Although Abe has given Kuroda a majority of supporters on the board, the more traditional values are still deeply-rooted with bureaucrats and technocrats inside the central bank.  The unprecedented aggressive monetary policy, the size of the BOJ’s balance sheet and the wide range of assets it holds, and negative interest rates on top of that has not generated strong price pressures or more robust economic activity.

Disappointment with the BOJ’s recent reluctance to take additional action appears to have facilitated yen strength.  It is difficult to see how the BOJ can get ahead of expectations, where comments (sourced and not) have suggested a range of options are being considered from deeper negative rates, applying the negative rate to a wider range of deposits, to steepening the yield curve and buying foreign bonds.  

The market’s reaction to the BOJ announcement may be more important than the action itself.  Investors should be open to the possibility that with global yields rising, curves steepening, monetary policy perceived to be near its political (if not economic) limits, the reaction function may be different.  If the BOJ will not or cannot ease further, investors may sell the yen and, in effect, inject an easing impulse for it.”