(JP) BANK OF JAPAN (BOJ) LEAVES TARGET RATE UNCHANGED AT 0.0-0.1%; EXPANDS ASSET PURCHASE PROGRAM BY ¥10.0T TO ¥80T; CUTS ECONOMIC ASSESSMENT
- Raising total size of the program through purchases of assets from ¥45T to ¥55T, with ¥5T in additional JGB purchases and ¥5T in additional T-bill purchases; Keeping fixed rate fund supplying operation at ¥25T.
- Total size is ¥55T + ¥25T = ¥80T
- To extend asset purchase deadline to end Dec 2013.
- To purchase treasury bills by end June 2013.
- To remove minimum bidding yield for JGBs, corporate bond buying.
New economic assessment: Pick-up in economic activity has come to a pause reflecting deceleration in overseas economies.”
Outlook: “Economic activity expected to level off more or less and y/y rate of change in CPI to remain around 0%.
Prior economic assessment for July: “Economic activity has started picking up moderately as domestic demand remains firm, supported by reconstruction-related demand.”
Policy: Decision to expand stimulus was unanimous. To continue to conduct policy in appropriate manner.
- Overseas economy has moved somewhat deeper into deceleration phase.
- Uncertainties regarding global economy continue to remain high, incl European debt problems.
- Japan economy registered high growth in H1 of 2012, supported by firm domestic demand
(JP) Japan Fin Min Azumi: BoJ actions were more significant than expected; surprised by the ¥10T expansion of Asset purchase fund.
(JP) Bank of Japan (BoJ) Gov Shirakawa Press Conference: “Japan’s economic recovery may be delayed by six months due to a prolonged slowdown in global growth…”
- BoJ is not less bold than the Fed or ECB. No central bank would act just because others did.
- Anti-Japan protests in China did not impact today’s decision, not sure how it will impact economy in the future.
- China continues to slowdown, their economy may face a turning point after high growth period.
- Focus is on the question of whether a smooth transition to milder growth can be reached in China.
- US corp sentiment and labor market is weak but housing is showing some signs of improvement.
- EU data is showing core EU countries are starting to be dragged down from peripheral countries.
- Decline in EU bond exports and excessive domestic investment are risk factors for China’s economy.
How to interpret this event?
Bank of Japan has responded to the recent stimulus launched by the Feds dubbed “QE3″, with more stimulus of their own in a new attempt to depreciate the yen as JPY’s rapid rise puts Japanese economy on watch for further stagnation. This announcement came as a total surprise even to Japan’s own Finance Minister Azumi, as most analysts expected BOJ to act behind the curve as usual. Of course, this is likely to add more pressure on the JPY as both stimulus and threats of intervention limit its upside potential.
With major central banks racing to pump more liquidities into their economies and the fact that there is finally a light at the end of the tunnel with the EU debt crisis, I believe the days where traders pile up on the JPY for the safety factor is waning, thus it may be time to start running JPY carry trades once again.
I’d be looking to go LONG on GBPJPY and EURJPY. I’ll take advantage of high impact releases this week out of UK to buy on dips, if we see dips…