Research Team at ING, suggests that the pressure has increased on the BoJ to deliver some form of stimulus at the 28 April meeting. Key Quotes “The economic case for easing is clear, so the two main questions are (a) what options do the BoJ have and (b) can these measures reverse or even stem the JPY’s current upward trend. BoJ option 1: Increase purchases of risk assets (corporate bonds, ETFs) Purchases of JGBs are now perceived to be impractical, thus any QQE-expansion must come from alternative risk assets. The BoJ’s scope to buy additional existing ETFs is limited (hence why in Dec they chose to jump-start creation of new ETFs). Purchases of corporate bonds look more feasible; while the BoJ is currently buying these to maintain holdings at ¥3.2tr, we estimate that there are ≈¥9tr of eligible bonds in issue and not held by the BoJ. There are other alternatives too (e.g. local government bonds), but crucially, all of these markets are small and hence the direct impact would be negligible. BoJ option 2: Cut interest rates further into negative territory January’s decision is still unpopular amongst the public and the market ramifications are still being felt. Yet, we feel that this is the BoJ’s most potent instrument and if they wanted to “shock and awe”, a depo rate cut would ultimately have to be involved given the lack of alternative “bazooka-style” instruments. Yet, the BoJ could find itself trapped in a vicious circle; if markets still perceive lower negative rates to be destabilising to the financial sector (as some board members alluded to in March), then the ensuing risk-off sentiment may counterintuitively exacerbate JPY strength. Overall, the BoJ may well find itself between a rock and a hard place should JPY strength persist ahead of the 28 April meeting. With intervention unlikely this side of 105, the BoJ’s biggest challenge will be to deliver a stimulus package that does more good than harm. Getting it wrong could prove costly in terms of fuelling JPY upside.” For more information, read our latest forex news.