Fed Actions cause BOJ’s Kuroda Headaches

The Federal Reserve’s surprise decision to delay tapering stimulus as inflation remains subdued suggests Bank of Japan Governor Haruhiko Kuroda faces an uphill battle to stoke price increases with quantitative easing.

Japan’s implied forward yield, which indicates bond investor expectations of the two-year note rate in 2015, has fallen to the lowest since April 4 when Kuroda began unprecedented stimulus, at 0.24 percent last week. That suggests the market doesn’t expect inflation pressure to push up yields for at least two years. The equivalent rate in the U.S. declined to a month low of 1.8 percent on Sept. 18.

While Japan’s consumer prices excluding fresh food rose 0.7 percent from a year earlier in July, the fastest increase since 2008, a bond market gauge is signaling inflation of 1.36 percent over the next five years, falling short of the BOJ’s 2 percent target by 2015. BOJ board member Takahide Kiuchi said on Sept. 19 it’s “highly uncertain” whether the goal can be met in two years and that the inaction of Fed Chairman Ben S. Bernanke’s board shows how hard it is to end unconventional policy.


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