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Bank Of Japan Preview: Intense Political Pressure For More Easing‏

ByDanske Markets
Published 12/19/2012, 06:42 AM
Updated 05/14/2017, 06:45 AM

We expect the Bank of Japan (BoJ) to announce additional easing measures in connection with the end of this week's BoJ meeting tomorrow. Following the LDP's landslide victory, there is intense political pressure for more easing and the best strategy for BoJ to preserve its independence will be some accommodation. In addition, Japan is in recession and the Fed's recent stimulus has put further pressure on BoJ for more easing.

We expect BoJ to raise the target for its asset purchases by JPY10-15trn, meaning that the pace of asset purchases early next year will be 8-10% of GDP compared with the Fed's planned asset purchases of around 6.5% of GDP. We do not expect the inflation target to be raised tomorrow, but it seems increasingly likely that it could be raised before a new BoJ board governor is appointed in April. BoJ could also announce details about its funding-for-lending facility that could open up for more widespread use.

Our call appears to be close to market consensus and hence we do not expect a substantial market reaction. The stretched market positioning probably limits the potential for further JPY weakness in the short run, but our view remains that JPY will remain on a weakening trend in 2013 on the back of a fundamental shift in monetary policy in Japan.

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