Grand Central: Bank of Japan Moves Goalposts, Keeps Playbook — For Now – Real Time Economics

The Wall Street Journal’s Daily Report on Global Central Banks for Thursday, April 30, 2015:

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SCHLESINGER’S TAKE: BANK OF JAPAN MOVES GOALPOSTS, KEEPS PLAYBOOK — FOR NOW

mike theiler/Reuters

Faced with a sharp drop in the inflation outlook six months ago, Bank of Japan Gov. Haruhiko Kuroda stunned global financial markets — and officials inside the central bank — by expanding his already-massive stimulus program.

As the BOJ unveiled Thursday its new semi-annual forecast, policymakers were once again forced to mark down their official inflation projection, and to push back further the date when they hope to hit their 2% target. But this time, officials passed up a chance to pump still more money into the Japanese economy, adding a new humility to their once-cocky campaign to end deflation.

The main headline from the one-day meeting: the central bank now says it expects to hit the inflation target “around the first half of fiscal 2016,” which starts in April 2016 — and only if oil prices rise. That’s later than the previous goal of “in or around fiscal 2015.” Translated into plain English, that means the original April 2013 pledge of hitting 2% inflation in two years has now slipped from three years to three and a half years — or longer.

For the just-ended fiscal year and the current one, the BOJ now expects its chief inflation gauge to hit just 0.8%, less than halfway toward the target. One board member sees inflation this year of just 0.2%, or barely out of deflation.

The ever-upbeat Mr. Kuroda says the shortfall between pledge and reality is largely the result of oil, and that the broader framework for a growth and price recovery remains in place.

And yet he conceded during his press conference that unexpectedly weak consumption has also damped price pressures.  The BOJ now estimates GDP shrank by 0.9% for the year ended March, about twice as bad as forecast just three months earlier.

Why didn’t the BOJ add more stimulus? Mr. Kuroda simply said he didn’t see the need, and he wouldn’t hesitate to do more if he felt inflation was slipping off track.

But there are also signs of spreading doubts about the effectiveness of further action, at least for now. Three of the nine board members openly doubted Mr. Kuroda’s ability to hit his target under even the new, delayed timetable. One cloud hanging over Japan’s forecast is new weakness in the U.S.  That’s in part the result of the strong dollar — the flipside of a yen weakened by BOJ easing.

Most BOJ watchers still think it’s only a matter of time before Mr. Kuroda once more tries to expand the central bank’s stimulus. But he’ll probably want to make sure he has a board majority behind him. Last October’s easing passed by a narrow 5 to 4 vote. The term for one of those dissenters expires in June, and he will be replaced in the July meeting by a new member assumed to be more sympathetic to Mr. Kuroda’s cause.

-By Jacob M. Schlesinger

MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD

gary cameron/Reuters

Slowing Growth is Giving the Fed Pause. The economy’s sharp first-quarter slowdown is giving Federal Reserve officials pause. The nation’s central bank pointed to cooling economic activity and reduced job-market gains in its policy statement Wednesday, underscoring uncertainty among officials about when the economy will rebound and clouding the timing of when they will begin to raise interest rates. Earlier in 2015, many officials thought a midyear rate increase was possible. Now it looks highly unlikely.

More from the Fed’s April statement and first-quarter GDP report:

Parsing the Fed: How the Statement Changed in April from March.

Highlights from the Fed’s April Policy Statement.

First-Quarter GDP At A Glance.

A Rare Win for Economic Forecasting: The Atlanta Fed Almost Nails Its First-Quarter Growth Estimate.

Fed Tests Press Teleconference. The Fed on Wednesday held a phone call with members of the press to test a teleconferencing system to be used if Fed Chairwoman Janet Yellen decided to hold an impromptu press briefing, such as following a policy meeting with no scheduled media gathering. Many investors have come to expect the Fed will only make major policy changes at its quarterly meetings that are followed by press conferences with Ms. Yellen, who uses the briefings to explain the actions in detail. She has emphasized that every Fed policy meeting is “live,” meaning the central bank could take action.

Community Bankers Push Lawmakers to Fill Vacant Fed Seat. Hundreds of community bankers in Washington, D.C. this week will be raising concerns with lawmakers about the stalled nomination of former Bank of Hawaii Chief Executive Allan Landon to the Fed’s seven-member board of governors. Senate Banking Committee Chairman Richard Shelby (R., Ala.), whose panel must consider Mr. Landon’s nomination before it can get a full vote in the Senate, said he’s informed the White House that he won’t schedule a hearing for Mr. Landon until the president nominates a candidate for the other open seat at the Fed.

Sen. Shelby Presses Democrats on Bill Aiding Smaller Banks. With the financial-services world following his every move, Alabama Republican Richard Shelby is flexing his muscle as chairman of the powerful Senate Banking Committee. In a speech on Wednesday, Mr. Shelby revealed a willingness to play hardball with Democrats over a bill designed to ease rules for small and midsize banks.

Bernanke Signs on With Pimco, Another Firm Not Regulated by the Fed, But With Deep Ties. For the second time this month, former Fed Chairman Ben Bernanke has joined the payroll of a large financial institution. And for the second time, he’s defended the move by noting that the institution is not currently regulated by the central bank. In mid-April, he joined the Chicago-based hedge fund Citadel. On Wednesday, the Pacific Investment Management Co.—known as Pimco — the world’s biggest bond mutual fund announced it had hired him as a senior adviser.  We documented all the ways the Fed and Citadel have overlapped in recent years.  Here we do the same for Pimco.

Bank of Japan Stands Pat as Inflation Weakens.  The Bank of Japan left its policy unchanged Thursday, sticking to the view that Japan is still on track to achieve 2% inflation despite stagnating price growth and lingering speculation that further action is needed.

Agence France-Presse/Getty Images

Eurozone Consumer Prices Steady in April, Easing Fears of Deflation.  Eurozone consumer prices stopped falling in April, further easing fears that a slide into deflation could derail the currency area’s fragile economic recovery. The European Union statistics agency Eurostat on Thursday said consumer prices were unchanged from a year earlier, having fallen in each month since December.

Eurozone Credit Squeeze Ending, But Confidence Shaken by Greece. Europe’s nearly three-year credit squeeze came to an end in March, figures released on Wednesday by the European Central Bank signaled, although a separate report showing a dip in consumer and business confidence suggested that concerns over Greece could dampen the eurozone’s economic recovery.

ECB’s Hansson: ‘Premature’ to Start Discussion on Ending QE. It’s too early to discuss tapering the ECB’s quantitative easing program scheduled to end in September 2016, a member of the ECB’s governing council said Wednesday. Still, “things are developing slightly more positively than expected a few months ago,” Estonian central bank chief Ardo Hansson said in an interview with The Wall Street Journal.

Swiss National Bank Posts Record Loss. The Swiss National Bank swung to a record loss in the first quarter as the strong franc eroded the reported value of its euro reserves, raising the prospect it won’t be able to make payments to Switzerland’s federal and regional governments.

Bank of Russia Cuts Interest Rates to 12.5%. The Bank of Russia cut interest rates Thursday for the third time so far this year and said it was ready to ease monetary policy further in the latest sign that the Russian economy is steadying just five months after a currency crisis triggered by western sanctions and plunging oil prices.

Brazil Central Bank Raises Benchmark Interest Rate to 13.25%. Brazil’s central bank on Wednesday raised its benchmark interest rate to 13.25%, from 12.75%, extending a tightening cycle analysts say is approaching its end.

Brendon O’Hagan/Bloomberg News

New Zealand Signals Rates May Fall.  New Zealand’s central bank kept interest rates at 3.5%, but signaled a willingness to cut if necessary in what many economists interpreted as a shift toward an easing bias. In a statement Thursday, Gov. Graeme Wheeler dropped earlier references to an anticipated “period of rate stability,” bolstering the view that the bank had changed its stance to a considerably more dovish one.

Central Banker Says Stronger Zloty Won’t Hurt Polish Exporters. Poland’s central bank isn’t worried about the zloty’s strength and its potential impact on the economy, central bank’s management board member Andrzej Raczko said Wednesday. “It’s perfect,” Mr. Raczko said when asked about situation in the foreign exchange market.

GRAPHIC CONTENT

The Homeownership Rate Is Now the Lowest Since 1989, But There’s a Silver Lining. The U.S. homeownership rate continued to decline in the first quarter of 2015, hitting 63.8%, its lowest level since 1989. But economists saw a silver lining in that number. For the second consecutive quarter, the number of total households – renters and owners – jumped significantly. Because many of those new households are renting, that can drive down the homeownership rate as a percentage of total households, while providing a glimmer of hope in the long term because eventually, those renters will likely buy homes.

FORWARD GUIDANCE

-8:30 a.m. EDT: Fed’s Tarullo speaks in Washington about tailoring community bank regulation and supervision

-Bank of Mexico releases a policy statement.

RESEARCH                                                                                                                                        

Have Distressed Neighborhoods Recovered? The U.S. government’s Neighborhood Stabilization Program aimed to helps areas hit hard by the housing crash, but evidence for successful recovery across seven large urban counties is mixed, Jenny Schuetz, Jonathan Spader and Alvaro Cortes wrote in a Finance and Economics Discussion Series working paper from the Federal Reserve. “Housing recovery proceeded unevenly…during the program’s implementation period, and the evidence linking [program] activity to housing changes is quite mixed.”

COMMENTARY

Stay Patient, Janet, write the editors at Bloomberg View. “The U.S. Federal Reserve indicated Wednesday that it is willing to wait a few more months — and possibly longer – before pulling back further on economic stimulus. Judging from the latest data on output and inflation, patience is absolutely the right policy.”

Obama’s Uphill Push for Free Trade. “It’s been quite a drought for American advocates of free trade,” writes Greg Ip in the Journal. “The last big global trade deal, the so-called Uruguay round, came together more than two decades ago. The last U.S. bilateral deals were signed in 2007. President Barack Obama wants to break that dry spell with his signature free trade initiative, the 12-nation Trans-Pacific Partnership.Here’s his challenge: Decades of trade liberalization have diminished the economic benefits—as well as the shocks—of new deals for big, open countries like the U.S. Yet in the minds of the public and many in Congress, bad memories from past deals linger, making the politics harder.”

BASIS POINTS

World trade volumes fell in the early months of 2015, once again disappointing the expectations of economists.

Malaysia’s central bank chief said Thursday a monetary policy review next week will consider mainly domestic factors, including the impact of recently enforced consumption tax–Dow Jones Newswires.

The National Bank of Belgium’s new website went live this week, receiving what the central bank called a “complete makeover” that made it “fully accessible from smartphones and tablets.”

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30 April 2015 | 11:17 am – Source: blogs.wsj.com

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