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Forex Flash: Get ready for the new BoJ's leadership - Nomura

Mr. Kuroda, set to become next head of the BoJ, has been advocating that the BOJ monetary easing has been too little and too late since the early 2000s, Nomura notes.

"Now the BOJ is going to be led by one of the BOJ's strongest critics, who emphasizes the importance of 'unlimited'
asset purchases to achieve the 2% inflation target and thus, the BOJ may start open-ended/unlimited asset purchases earlier than currently scheduled (2014)" Nomura thinks.

With regards to foreign bond-buying by the BOJ, Nomura suspects "the BOJ may not embark on a foreign bond-buying operation in the near future and the BOJ's balance sheet expansion will focus on domestic asset purchases." The BOJ's foreign bond-buying possibility has been discounted back by market, so "this may not be a negative surprise to the market" Nomura adds.

Meanwhile, Gakushuin University Professor Mr. Iwata and BOJ executive director Mr. Nakaso are likely to be the deputy governors. Nomura thinks that "sending two strong critics of BOJ monetary policy into the Bank suggests PM Abe’s strong will to change BOJ monetary policy", thus "the pace of balance sheet expansion can accelerate further as a result" they think.

Nomura believes that the appointment of Iwata and Nakaso, coupled with Kuroda as the head, "will be in stark contrast with the Fed's near-term monetary policy, which is likely to start considering not only the benefits but the costs of quantitative easing." Hence, Nomura expects "the difference in monetary policy direction between the BOJ and Fed will increase further."

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