"There is considerable uncertainty over the outlook for prices," Kuroda told a press conference on Friday, following the Bank of Japan's July meeting. "In order to prevent these uncertainties from leading to a deterioration in confidence in households and businesses, we have decided to implement new measures."
The BOJ decided to double its annual purchases of ETFs to ¥6 trillion and will conduct an assessment of the effects of negative interest rates and its asset-buying program, which Reuters says suggests "that a major overhaul of its stimulus program may be forthcoming."
It's been a wild week leading up to the BOJ decision. "Helicopter money" speculation created a massive amount of volatility. Take a look at the last four days of trading in the USDJPY, with short-term intraday moves bouncing between -1.79% to +2.32%. Meanwhile, the peak-to-trough decline over the past four days is -3.55%:
In the past, BOJ Governor Haruhiko Kuroda has thrown cold water on helicopter money speculation. Here are a collection of recent statements from Kuroda addressing helicopter money:
- "WSJ: There’s been a lot of discussion recently, especially among academics, about employing helicopter money, fiscal expansion financed with monetary quantitative easing. Is that something that should be considered in Japan?
Mr. Kuroda: No.
WSJ: Why not?Mr. Kuroda: No, we have no intention to employ helicopter money, anything like that, because, as you know, in any—almost all developed countries, fiscal policy is formulated by the government and approved by the parliament. Fiscal policy is the responsibility of the government and the parliament and prerogative of the government and the parliament." 4/18/16 (Wall Street Journal)
- "Helicopter money is a policy where monetary and fiscal measures become one. But developed countries have learned through history to keep monetary policy and fiscal policy separate, with the central bank taking charge of the former and the government the latter... I don't think [helicopter money] can be adopted under the current legal system." 4/28/16 (Nikkei Asian Review)
- "No need and no possibility for helicopter money." mid-June, (BBC Radio 4)
- "There is an institutionally established system in which the government and the Diet are responsible for carrying out fiscal policy, while monetary policy is conducted by an independent central bank. Under the current legal system, I don’t think we can carry out (helicopter money)." 6/17/16 (Japan News)
Why does this matter?
You'll note that the Reuters headline above is exactly one week before the BOJ announced it would pursue negative interest rates. You may be wondering... Will Kuroda shock markets again?
However, the more relevant question investors should be asking themselves is: Will the BOJ's "major [policy] overhaul," helicopter money or not, ultimately matter?
Since announcing the BOJ's negative interest rate policy in January:
- Nikkei: -5.4%
- USDJPY: -15.3%
- 10yr JGB: -29bps
Clearly, markets continue to price in Japanese #GrowthSlowing regardless of what BOJ bureaucrats say. We continue to believe that central planners cannot rain money down from the heavens and expect their flagging economies to grow.