Disappointed market

“At present, nobody quite knows where Japan is going with its monetary policy.”


memos of Bloomberg reports on BOJ’s announsment today


Disappointed market

Today BOJ plans to pump 2.7 trillion yen a year more into stocks and continue to expand the monetary base by an annual 80 trillion yen government bond buying, then

Japan’s 10-year sovereign yield rises most since 2013
The Topix index initially slid as much as 1.4 percent
The yen surged as much as 2.4 percent

Market expects “helicopter money + a further cut to the negative deposit rate”

The maintained 2% inflation target is no believable as

 “market of strong yen shows real interest rates in Japan are higher than real interest rates in US”

Market believes Kuroda has reached the limit of what he can do without fiscal expansion and demand growing though

Kuroda reiterated that further easing will be done if needed and said the central bank hasn’t hit a policy limit.

Limits or not?

no-win situation

“If they had done nothing, people would have assumed they were giving up on QE. But they don’t want directly financing government debt. So they focused on private assets, not government assets.It was just a question of how to get out of it.”

Limit of NIRP

“the BOJ decided to stay away from a deeper cut to the negative rate because the strategy has been so unpopular, especially with big banks.”

Limit of JGB liquidity

the BOJ now holds more than one third of Japanese government bonds outstanding, contributing to a collapse in yields and a flattened yield curve

Assessment in Sept

Assessment of the effectiveness is quite unusual and might indicate the BOJ “could potentially rip up its current stimulus framework and consider more radical measures, including helicopter money.”

political pressure

the BOJ “succumbed to political pressure” to do something, partly as a result of the government’s announcement of its 28 trillion yen fiscal stimulus package

(poor structural reforms…)




For Japan’s stock market

A 3 trillion yen increase in the BOJ’s ETF holdings was within expectations, but “once they start actually buying the ETFs, the market will gradually rise”

For Japanese investors, the home market has been more rewarding in yen terms than faster-growing emerging markets such as China, India and the Philippines.

(Effect of BOJ’s ETF buying can be doubted if one remember what happened in China one year ago)

However, cheaper credit won’t be enough to boost new investment as bosses and finance chiefs would worry about a further soaring yen.

スクリーンショット 2016-07-29 19.27.00


China and Korea as beneficiaries

A strong yen benefits growth countries in the rest of Asia by taking the pressure of other Asia currency against US dollar

“you will see firms like Samsung produce better numbers”

better sentiment for RMB: “the currency is weakening, but no one’s really concerned about it”




Adding a report from Blackrock

How low can interest rates go?



Things that drive US rates:

economic performance (towards both sides)

e.g. US surprisingly strong payrolls report for June, short run absence of significant inflation pressure

political uncertainty

e.g. Brexit

global demand for U.S. Treasuries

zero and negative rates in other developed markets make U.S. rates relatively attractive, while shift of foreign Treasuries holders from offical towards private raises hedging costs of currecy risk and reduces attractiveness

limits to QE and NIRP

currency can be printed, but limits exist in the eligible bonds to buy, which force central banks into longer-maturity bond purchases

except helicopter money, little further room for monetary policy accommodation to effectively stimulate the real economy


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