After months of verbal intervention from Japanese government officials and central bank members, markets now expect large scale action to beat the chronic deflation that has plagued Japan. Commentary from Japanese Prime Minister Abe, who has reiterated his call for “pursue bold monetary easing”, has been effective in devaluing the JPY against the USD, with hopes of re-inflating the Japanese economy. In turn, Japanese stock prices and government bond prices have also benefited from increased expectations of easing from the central bank.
Now that Shirakawa has stepped down early from his role as Bank of Japan governor, the stage is set for his dovish replacement Kuroda to implement bold monetary easing at his inaugural meeting. As Kuroda has pledged to do whatever it takes to end deflation, expectations are high and anything other than "bold" easing may be seen as a disappointment by the market. If this turns out to be the case the Nikkei 225 will likely come under pressure, with export stocks in particular focus, as the JPY will likely strengthen aggressively if the market feels the central bank has not delivered as much as promised.
Below we have outlined a few key points to look out for in today's meeting:
Moving forward of the open-ended asset purchase program from the start of 2014 to May 2013.
- Increase in the asset purchase programme to a net JPY 4trl a month (JPY 48trl annualized).
- Restructuring of Bank of Japan framework with the merging of the asset purchase program and Rinban operation, this should make communication of monthly purchases clearer to the market.
- The purchasing of longer dated JGBs from the current 1-3 years to 30 years in an attempt to lower yields across the curve.
- A change in language to guide expectations in the direction of further action in the near term. This may come in the form of "the BoJ will continue the virtually zero rate policy until the 2% inflation target is in sight", much in a similar fashion to the use of Fed language.
- Removal of the bank note rule (currently limits purchases to the amount of currency notes in circulation).
As is normally the case, the Bank of Japan announcement has no definitive time of release, however, do note that one major news wire has it scheduled for 0300BST/2100CDT. BoJ governor Kuroda is then due to hold a press conference post meeting at 0730BST/0130CDT.
03 Apr 2013 - 19:23 - Fixed Income Bank Speaker - Source: RANsquawk
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