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20 May 2015
BoJ expected to ease further in April 2016 – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura, expect additional monetary easing by the Bank of Japan in April 2016, and further believe that the central bank would start looking into reducing the value of its long-term JGB purchases.
Key Quotes
“The BOJ has effectively pushed back its forecast for the timing of the achievement of the 2% inflation target from around FY15 to around FY16 H1. In response, we have changed our forecasts for BOJ monetary policy through March 2018. We had previously been forecasting additional monetary easing in October 2015 but we now expect this to happen in April 2016.”
“We think that the additional monetary easing measures that we expect to be announced in April 2016 will be centered around an increase in the value of the BOJ’s equity ETF purchases and will not include an increase in its JGB purchases.”
“Also in April 2016, we expect the BOJ to announce its intention to start looking into reducing the value of its long-term JGB purchases (tapering) at some point in the future. If the BOJ maintains its JGB purchases at their current level, it is likely to face a problem in terms of restrictions on the supply of long-term JGBs, which would increase the likelihood of an excessive fall in long-term JGB yields. We think the BOJ will probably reduce its JGB purchases in order to avoid this problem.”
“In the announcement it makes in April 2016, we think the BOJ will emphasize that it plans to reduce its long-term JGB purchases in order to avoid an excessive fall in yields brought about by a shortage of supply, and that even with a reduced level of JGB purchases, QQE will still have the effect of lowering long-term interest rates. The purpose of this would be to reduce any negative impact on the financial markets in the form of a strengthening of the yen or a fall in equity prices.”
“We expect the BOJ to start reducing its JGB purchases in October 2016 and to continue reducing them gradually thereafter until the annual value of its JGB purchases falls to around ¥30trn in October 2017.”
Key Quotes
“The BOJ has effectively pushed back its forecast for the timing of the achievement of the 2% inflation target from around FY15 to around FY16 H1. In response, we have changed our forecasts for BOJ monetary policy through March 2018. We had previously been forecasting additional monetary easing in October 2015 but we now expect this to happen in April 2016.”
“We think that the additional monetary easing measures that we expect to be announced in April 2016 will be centered around an increase in the value of the BOJ’s equity ETF purchases and will not include an increase in its JGB purchases.”
“Also in April 2016, we expect the BOJ to announce its intention to start looking into reducing the value of its long-term JGB purchases (tapering) at some point in the future. If the BOJ maintains its JGB purchases at their current level, it is likely to face a problem in terms of restrictions on the supply of long-term JGBs, which would increase the likelihood of an excessive fall in long-term JGB yields. We think the BOJ will probably reduce its JGB purchases in order to avoid this problem.”
“In the announcement it makes in April 2016, we think the BOJ will emphasize that it plans to reduce its long-term JGB purchases in order to avoid an excessive fall in yields brought about by a shortage of supply, and that even with a reduced level of JGB purchases, QQE will still have the effect of lowering long-term interest rates. The purpose of this would be to reduce any negative impact on the financial markets in the form of a strengthening of the yen or a fall in equity prices.”
“We expect the BOJ to start reducing its JGB purchases in October 2016 and to continue reducing them gradually thereafter until the annual value of its JGB purchases falls to around ¥30trn in October 2017.”