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Japan: Inflation Target Raised But Less Easing Than Expected

ByDanske Markets
Published 01/24/2013, 07:48 AM
Updated 05/14/2017, 06:45 AM

Bank of Japan (BoJ) as expected today raised its inflation target from 1% to 2% and also made its asset purchase programme open ended, meaning there is no specific termination date. BoJ announced that from January 2014 its monthly purchases of government bonds will be JPY13trn.

On balance BoJ in our view delivered less than expected. While it announced for the first time that its asset purchases will be continued in 2014, its net purchases next year will be relatively modest and BoJ did not increase its planned asset purchases in 2013. In addition, BoJ did not cut the interest rate on banks' excess reserves at BoJ or increase the maturities of its government bond purchases, thereby not living up to market expectations.

JPY has strengthened on the back of today's announcement and in light of the stretched positioning for weaker JPY, there is a risk of a short-term correction of JPY. The fundamental picture for JPY in our view remains negative. BoJ will be the only major central bank that will continue to expand its QE programme in 2014. In addition, the balance on the BoJ board will shift decisively in favour of the doves in the next few months with the appointment of two new deputy governors and a new BoJ governor. A stronger JPY and major correction of JPY will most likely be regarded as policy failure by the new government and the new majority on the BoJ board and is poised to be met with more aggressive easing.

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