BoJ: Great expectations in Tokyo - RBS

James Nelligan, suggests that at the forthcoming BoJ policy meeting, RBS Japan economist Jin Kenzaki expects policy makers to increase the size of their ETF purchase programme from ¥3.3tn to ¥7tn, lower the deposit rate from -0.1% to -0.2% and lower the rate on the loan support programme from 0 to -0.1%.

Key Quotes

“Initially this will likely push USD/JPY higher along with Nikkei strength and nominal interest rate differentials. Indeed, the yen is likely to weaken over the course of this week on anticipation of a shock-and-awe type easing package from governor Kuroda. However, the central bank runs the risk of a severe reversal of any yen weakness should they be seen to have under delivered.

Furthermore, the factors driving our bullish long term view on the yen have not disappeared. Policy makers need to repair the damaged transmission channel between policy and asset prices by shocking inflation expectations and driving real yields lower. We are ultimately sceptical of their ability to do that over the long term. But that doesn’t mean markets can’t sell yen as they grow curious about a pronounced easing package.”