FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the market greeted December 18 announcement by the Bank of Japan of enhancements to its QQE program with shrugged shoulders.
Key Quotes
“Camouflaged as a ‘technical adjustment’ the BoJ has delivered a small but significant easing, indicating their ongoing commitment to reflate the economy and underscoring BoJ/Fed policy divergence in the week of the Fed’s historic rate hike. For us, these additional measures are not a symbol of impotence, but a reiteration of the BoJ’s commitment to achieving its objectives by future-proofing and improving the effectiveness of the current QQE program.”
“We push back on expectations that the BoJ is unlikely to ease further in the near-term – our Japan economists retain their forecast for upcoming easing in April to counter the declines in inflation expectations. And although there is concern that the split vote (6-3 in favour) on the measures taken on Friday indicate a lack of enthusiasm on the Policy Board for renewed stimulus, we would point to the obvious counter-example of the October 2014 QQE2 announcement, which was taken with a 5-4 majority. This latest meeting does not represent the ‘last gasp’ of the BoJ.”
“By extending the maturity of its existing purchases – one of the QQE enhancements released last week – Governor Kuroda indicated at the post-meeting press conference that the BoJ’s actions would help push down yields across the entire curve, one of the aims of their QQE program. A lower and flatter yield curve will further accentuate the portfolio balance channel of QE, encouraging investors into riskier assets and foreign assets.”
“We think the BoJ is closer to easing further to attempt to achieve a successful reflation than it is to giving up altogether, and so we continue to expect $/JPY higher. We recommend being long $/JPY as part of our 2016 top trade recommendation (along with short EUR/$) and forecast $/JPY at 130 in 12 months.”
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