JPY: Not looking for September ‘BoJ Bazooka’ – BNPP

Sam Lynton-Brown, Research Analyst at BNP Paribas, thinks that the likelihood of the Bank of Japan (BoJ) delivering ‘bazooka’ style easing at its upcoming meeting on 21 September is low.

Key Quotes

“Our economists think further rate cuts are unlikely, due to strong opposition from financial institutions and legislators. A further increase in exchange-traded-fund purchases also seems unlikely after the recent doubling of buying volume, while it is very difficult for the BoJ to increase the current pace of Japanese Government Bond buying because the market believes the policy will hit its limits sooner or later.

Our economists think the most likely scenario is that the BoJ will change its monetary base target from an annual JPY 80trn to a range, possibly between JPY 70-90trn, and simultaneously announce that buying operations will be conducted flexibly within this range, to ensure long-term yields remain low. This will indicate that the central bank believes the intended policy effects are achieved by keeping long-term yields low rather than from the size of JGB buying itself.

Introducing a monetary base range, with the BoJ potentially initially buying towards the upper end of that range, would be seen as new monetary easing by the market. However, it would not represent a ‘bazooka’ style announcement, and we think BoJ easing along these lines is unlikely to be effective in significantly weakening the JPY unless it is aided by US Federal Reserve tightening and a steeper US yield curve.”