Taking the vast majority of investors and analysts by surprise, the BoJ – following its monetary policy committee meeting – has announced that it had decided to boost its quantitative easing programme (which economists already consider to be enormous). The Yen immediately plummeted against the US dollar, hitting an all- time 7-year low. Indeed, the JPY dropped to 110 versus the USD on the BoJ’s announcement, currently trading above 111. In 2013, the institution had launched a bold monetary strategy in an attempt to pull Japan out of the deflationary spiral that is depressing its economy.
In today’s announcement, the BoJ is proposing that it increase the volume in asset buy-backs that it has been carrying out on a monthly basis for 2.5 years already in the Japanese markets. Up until now, the BoJ’s aim had been to buy back between JPY 60,000 and 70,000 billion in securities – essentially, government bonds – in Japanese exchanges. This annual objective is now going to be brought to minimum JPY 80,000 billion. With these repurchases, the BoJ essentially hopes to almost completely dry up the bond market on which commercial banks traditionally liked to place their money, rather than lending it to businesses or individuals. Without any alternative investment option, the banking establishments are – in theory, at least – supposed to now be more generous in their loans to economic players.
In addition to the amount, one should integrate the extension of the average duration to close to 10 years, and triple both ETF and REIT purchases…
From my point of view, this surprise movement is also an admission of the failure of Shinzo Abe’s policy aimed at making inflation take off about the 2% mark. Published today, CPI data shows that, on the contrary, inflation is tending to drop as the effects of April’s VAT-hike dwindle out in the statistics. In technical terms, the NIKKEI tested – for the third time this year – the 16,400-point mark. The market’s ability to hold this point would open upside movement towards 18,200 points (2007’s high), with an eventual stop around the 17,500-point mark. One would almost think that the head of the BoJ is a ‘chartist’, because an announcement of this kind – on a Friday, no less – is perfect on a weekly closing basis. Bear in mind, though, that this movement looks like a ‘last chance’ move.
