Market participants and economists have watched the unfolding of the BoJ’s current course of quantitative easing and monetary policy with a healthy dose of scepticism and, in many cases, dread. By extension, questions about the stability of Japan’s economy continue to abound, as do concerns about the efficacy and ultimate success of Prime Minister Shinzō Abe’s “three arrows” policy.
The possibility that the BoJ could revise its policy stance is currently dominating headlines in the run up to Wednesday’s announcement, though many in the investment management industry remain convinced it will be business as usual.
Kashima, who heads the Japanese Equity department at BNY Mellon, agrees with other sceptics on this point. “The real big move by the BoJ happened in 2013. The rate of change has definitely diminished since then so if anyone is expecting the type of surprise they provided in 2013, they are going to be disappointed. I don’t think they are going to double the monetary base,” she said.
Moving forward, she asserts that staying out of negative rate territory is far more important than hitting the BoJ’s 2% inflation target.
“In my mind, it is not essential that we get to the 2% target. If we were at 2% right now, a lot of people would be jumping up and down saying that inflation is damaging the poor pensioners’ income and wondering whether this would be a drag on the economy. The key thing is that we actually stay out of negative territory. I think from time to time we will dip into negative territory because of changes in commodity prices, but as we saw over the last 20 years, that tends to have a temporary impact, not a long-term impact on inflation.”
Instead, Kashima suggests the wage level is a far more important indicator of a healthy economy. And this is one of the reasons why she views the recent turnaround in part-time and full-time wages as signs of a recovering economy, as well as a testament to the success of Abe’s policy.
“Wages declined during the decades of deflation in Japan, but now they are starting to pick up. After two decades of shrinkage we are expanding again, and I think we owe a lot to Abenomics, which a lot of people say has failed or run out of steam. With unemployment down at 3% and job offer to applicant ratio at 1.3%, I think you have to say there has been some success.”