Last week BOJ’s statements and measures looked more similar to expectations fullfilment than an expectations disappointment and action has been consistent respect words spent in the recent past. JPY weakened and Nikkei rallied after Kuroda’s shot at first impression beat the best among good prognostics. In BoJ effort to do "whatever it takes" the asset purchasing program will be merged with the outright JGB purchase program (rinban), and JGB purchases will be expanded to include all maturities, including 40-year bonds. The pace of JGB purchases by the BoJ will be accelerated to ¥7trn per month from just under ¥4trn currently (on a gross basis), and purchases of ETFs and J-REITs will also be increased. The main operating target for money market operations was changed to a monetary base control (a quantitative index) from the uncollateralized overnight call rate. Though no mention of foreign bond-buying was made, and increase in ETFs and REITs is included. Anyway there is a strange coincidence: it seems the bigger the Fed balance sheet relative to the BoJ, the weaker the JPY gets. Then, what? Till now, despite six months of jawboning and a 20% devaluation, we saw only disappointing macro data, and the yen started to get stronger again. Now Kuroda has started a new “bold” monetary policy. We wait to see for further implications ahead but the FX market, after the first shot, is clearly getting yen/eur back toward march top around 127, but it seems to cap Yen depreciation against Euro close to that level. Another “enthusiasm first, delusion then” round? Maybe Fed balance will grow further ad quicker? We’ll see it.
