BOJ Needs Massive Shock & Awe, $2 Trillion Investor Says (1)

(Bloomberg) -- The Bank of Japan could announce a “massive stimulus program” as the nation seeks to reach a 2 percent inflation target, according to UBS Wealth Management.

“It is how much they do, and whether they can create that kind of shock and awe at this point in the cycle,” said Mark Haefele, global chief investment officer at UBS Wealth Management, in a Bloomberg Television interview, on Monday. “They could announce a massive stimulus program both on the monetary and fiscal side or they could end up reducing their inflation targets. Right now, it looks like they are going to use more stimulus. ”

Governor Haruhiko Kuroda said over the weekend in the U.S. that the central bank won’t hesitate to boost monetary stimulus if needed, and there is ample space for additional easing. He also said at the Federal Reserve’s annual policy retreat in Jackson Hole, Wyoming, that the central bank will carefully consider how to best use policy to achieve its price stability target.

Consumer prices excluding fresh food -- the BOJ’s benchmark inflation gauge -- fell 0.5 percent in July from a year earlier, government data earlier this month showed. That was the steepest drop since March 2013, the month before Kuroda launched unprecedented stimulus. Japan’s household spending fell for a fifth straight month and retail sales also dropped, government data released Tuesday show.

Benchmark 10-year JGB yields reached a record low of minus 0.3 percent last month before rising to minus 0.075 percent Tuesday in Tokyo. The BOJ refrained from increasing bond purchases or cutting negative interest rates further in July.

Central Bank Jeopardy

Japan’s inability to achieve its goals has “put that country and that central bank into some kind of jeopardy that they are going to have to work their way out of,” according to Haefele. He oversees the investment policy and strategy for about $2 trillion in invested assets at UBS Wealth Management, according to UBS’s website.

The BOJ is currently undertaking a review of its monetary policy ahead of its next meeting Sept. 20-21. Whether the central bank adopts more stimulus with the yen at its current level or waits to see if it strengthens more is “an open question,” he said.

“It is hard to say that any one move is going to be enough given the history of stimulus in Japan has been erratic,” Haefele said. “But everybody is hoping that they will give it another try because clearly Japan, despite reaffirming their inflation targets, has not been able to hit them.”

(Updates with household spending data in the fourth paragraph.)

To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net, Anna Edwards in London at aedwards49@bloomberg.net. To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Garfield Reynolds at greynolds1@bloomberg.net, Tomoko Yamazaki, Ken McCallum

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