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BOJ tweaks QQE programme - Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 18, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at Nomura, notes that the BOJ has announced a couple of adjustments to its current QQE programme today, while keeping the pace of its asset purchases essentially unchanged.

    Key Quotes

    “The title of its policy statement is (an] “introduction of supplementary measures” for Quantitative and Qualitative Monetary Easing, which shows these new measures are neither a bazooka nor additional easing. The new measures aim to ensure the sustainability of the current QQE programme, expanded in October 2014. The statement then was clearly titled as an “expansion”.

    New measures

    Specifically, to facilitate the current QQE programme, the BOJ has decided to: 1) expand eligible collateral for the Bank’s provision of credit, 2) extend the average remaining maturity of JGB purchases (from 7-10yr to 7-12yr), and 3) increase the maximum amount of each issue of J-REIT to be purchased. On top of these measures, the BOJ has also decided to purchase JPY300bn of ETFs, focusing on firms that are proactively making investment in physical and human capital. The BOJ has also extended the loan support programme.

    While the BOJ is going to purchase JPY300bn/yr more of ETFs, on top of the current JPY3trn/yr, the Bank has also announced it will restart selling equities which were bought from financial institutions in the early 2000s. The Bank said the pace of annual bank equity selling will be JPY300bn/yr. Thus, the newly announced ETF purchases will just keep the amount of equity purchases constant and this is not an expansion of the QQE programme.

    Additional easing is still possible

    Importantly, the BOJ did not change its assessment on the economy and inflation at this meeting, which also suggests the new measures today are just to address the sustainability of the current QQE programme, not necessarily to add monetary stimulus. Governor Kuroda said the BOJ made changes to allow the Bank to adjust policy if needed, while repeating these measures are different from additional easing.

    The BOJ has been focusing on wage talks that start next month, and we think disappointing wage momentum will still encourage the BOJ to ease.

    It appears that today’s BOJ “tweaks” have lowered market expectations for near-term easing action by the BOJ. In that sense, we now have limited room for further disappointment. In addition, the BOJ’s adjustment today will apparently ensure QQE will be sustained with the reduced possibility of a near-term tapering, which would be the worst case for USD/JPY. Lower yields have continued to encourage a portfolio shift by Japanese investors from JGBs into foreign assets, limiting downside risk for USD/JPY. As the Fed finally embarked on its tightening, monetary policy divergence remains a driver of USD/JPY appreciation. We entered a USD/JPY call spread yesterday after the slightly hawkish Fed decision, and we still see more upside potential for USD/JPY.”
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