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Markets surprised by new round of BoJ stimulus - BTMU

FXStreet (Łódź) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ comments on the BoJ's decision today to ease monetary policy further, which prompted a sell-off in the JPY.

Key Quotes

"The degree of yen selling in response to the BOJ announcement this morning is indicative of the degree of surprise with nobody anticipating action from the BOJ at this stage. However, it would appear that BOJ Governor Kuroda and the Policy Board had become increasingly concerned over the risk of 'conversion to a deflationary mindset'."


"The BOJ has taken the following monetary easing steps today : 1)The BOJ will accelerate the pace of increase in the monetary base to JPY 80trn per year, up from JPY 60-70trn prior. 2)The BOJ will increase the pace of purchases of JGBs from about JPY 50trn per year before to JPY 80trn."

"The securities purchased will be of longer maturity, extending from on average 7yrs before to an average range of 7-10yrs. 3) The BOJ will purchase ETFs and J-REITs at triple the previous pace, reaching annual purchases of JPY 3trn and JPY90bn respectively."

"The vote was split 5-4 highlighting the clear disagreement over the course of action to be taken. It is certainly understandable that some BOJ Policy Board members may be somewhat concerned."

"The scale of buying was already unprecedented and the faster pace now means that by the end of 2015 assuming the JPY 80trn of purchases and the other asset purchases, the total size of assets on the balance sheet of the BOJ could increase to about JPY 380trn. The figure as it stands now is already over 50% of Japan’s nominal GDP and this is now expected to move up to around 75%. That is extraordinary and unprecedented."

"The action was clearly viewed as required from what the BOJ has been telling us in regard to the inflation outlook. For some time BOJ Governor Kuroda had been telling us that after a period of stability in core nationwide inflation, the annual rate would then start to drift higher in the second half of the fiscal year."

"The assessment today was that clearly that was not going to happen. The BOJ forecast for core annual inflation, excluding the sales tax impact, was lowered from 1.9% made in July to 1.7%."

"The 2016 target was maintained at 2.1%. So in effect this action today was required in order to maintain the annual inflation at the target level over the medium term."

"In regard to the impact on the yen, our Q3-2015 target of 115.00 is clearly under threat of being achieved much sooner than that. You may recall, the deliberations amongst market participants of late has been about theJapanese authorities becoming more concerned over the negative impact of a weak yen."

"Well, we were sceptical of that and argued that we should watch what the authorities do rather than what they say and that point holds more so today than ever. There is a determination amongst the authorities to try and change the mindset of Japanese households, and yen devaluation will be a key part of that."

"We could easily see USD/JPY climb to 115.00 over the next few days – a key difference between this announcement and the April 2013 is that today’s is a complete surprise while the April 2013 decision was well telegraphed. Both are aggressive but our sense is that many in the market will not have been positioned for this like they were in April 2013."

"While the easing today is unlikely to have the same impact going forward, the initial move might be just as large. USD/JPY jumped 7 big figures in about a week after the April 2013 announcement."

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