BOJ Easing Speculation on the Rise - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that they are
certainly not surprised with greater market talk of additional BOJ
easing, perhaps as soon as the next meeting on 28th April.
Key Quotes
“It’s
hard to argue against that really and it is inevitable that the updated
forecasts by the BOJ will point to both weaker growth and lower
inflation. Former BOJ Deputy Governor Iwata stated today that the BOJ
might run up against limits on JGB purchases by the middle of next year
and hence its key policy tool will not be QQE but taking rates deeper
into negative territory.
He goes on to cite -0.7% or perhaps
even -1.0% as being “appropriate”. Certainly it makes sense to assume
further cuts will be part of any package of additional easing measures.
To refrain from cuts would be a signal to the markets that the BOJ
doesn’t envisage rate cuts as a policy tool and that would be a
dangerous signal given where central bank policy rates are in other
countries.
We certainly remain very sceptical of intervention
being a viable option any time soon, and that view was of course
reinforced by PM Abe’s comment that Japan must “refrain from arbitrary
currency intervention”. It is worth remembering that there really is no
urgency at current levels. When viewed in BOJ nominal trade-weighted
terms, the yen closed at 99.11 yesterday and has more than unwound the
depreciation fuelled by the 2nd round of BOJ QQE in October 2014.
But
relative to the most recent high before Abenomics was launched in 2012,
the yen remains 25% weaker. What PM Abe and the BOJ will be hoping for
is continued evidence that China growth is stabilising along with
evidence of crude oil price stability. A continuation of both would be
far more powerful in lifting USD/JPY than “arbitrary intervention”.”
(Market News Provided by FXstreet)
