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 Wednesday 27 April 2016

PM Bulletin: BOJ meeting

 

 




     

   

Early tomorrow morning the Bank of Japan (BOJ) will release its latest monetary policy statement and soon after BOJ Governor Haruhiko Kuroda will hold his usual press conference. There is considerably more riding on this event than the Fed meeting later this evening and the outcome of the BOJ meeting has the potential to shake up risk assets. Analysts are fairly evenly split over the prospect of additional stimulus measures being announced. However, the majority of traders expect further easing. Consequently there is scope for disappointment.

The BOJ held off from loosening monetary policy further at its last meeting in March. It did this in order to give its adoption of negative interest rates at the end of January more time to work.  But this time round it will also consider the effects of the recent earthquakes which disrupted supply chains and will have had a negative impact on industrial production.

Despite this, the BOJ may have to hold off from yet another round of stimulus at this time. The yen has weakened substantially since the USDJPY broke below 108.00 earlier this month. It is now trading north of 111.00. Granted, the yen’s retreat has come primarily from the expectation of additional BOJ intervention. However, there is international pressure (post the G20 meetings in Shanghai) on countries not to take unilateral measures to weaken their respective currencies to gain a trade advantage. While Japanese policymakers could have argued about the “one-sided” nature of the strengthening yen a few weeks ago, they can’t do so now. In addition, the BOJ may decide it’s better to keep their powder dry now and hope for a bigger effect if they ease later in the year. BOJ members will be painfully aware that the yen rallied after they adopted negative interest rates back in January. It would be an absolute disaster for them (and potentially for all central banks) if they cut further and the yen strengthened once more.

Additional stimulus may also come in the form of boosting QQE, perhaps by increasing the amount (or extending the scope) of the BOJ’s ETF purchases. This should help support the Nikkei. However, there’s a real danger that the central bank is running out of assets to buy. That being the case, there’s a worry that we’re approaching the endgame as far as the BOJ is concerned. Consequently, there’s a possibility Mr Kuroda may choose to sit this one out and promise more stimuli in the future. Unfortunately, it’s unlikely markets would take this well.


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Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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