PEC’s Japan strategy:Timing the next BOJ move

On 28 April 2016, the BOJ made no changes to its “Quantitative & Qualitative Easing with a Negative Interest Rate” policy (QQE & NIRP) program. We believe the BOJ has not finished yet. We are expecting a continuation of the current program of policies through 2019, including the BOJ moving its interest rate ‘paid’ on Tier Three current balances from the current -0.1% to -0.3% on 29 July (previously April), and then to -0.5% on 20 December (previously November).

Political issues are becoming more of a constraint, Fig 2.

Sector & stock implications: We put our forecasts for Japanese monetary policy into a historical context (pages 2-12), and examine the implications for the banks, reflation & property, insurance and consumer credit sectors (pages 13-21).

A low-growth trap: The broader context to Japan’s monetary policy is the government’s policy priorities, Fig 28. Fiscal reconstruction, defined as stabilizing the public debt to GDP ratio, the associated financial repression and the behavioural responses of the household and corporate sectors have led Japan into a low-growth trap. This is explained over pages 22-34.