19 December, AtoZForex.com, London – The Bank of Japan (BoJ) maintained its annual monetary expansion target of 80trn Yen during the Press Conference on Friday, but highlighted some changes to the basket of purchases.
BNP Paribas BOJ review
The BoJ prolonged the average maturities of JGBs from 7 –10 years to 7 – 12, announced a new ETF buying program, which amounts to an annual budget of JPY 300bn, and increased the amount of each REIT issue the central bank can buy from 5% to 10 percent.
“These operational changes to the purchases do not directly have particularly pronounced FX implication, but nonetheless they act as a reminder of the BoJs clear easing bias,” BNP Paibas argues.
Initially, USDJPY has rallied at the announcement, but in the aftermath of the event traded roughly 200 pips lower falling near 121 level.
“The BoJ do not need to increase their monetary base expansion target or cut rates further for USDJPY to rise towards our end-2016 target of 134,” BNP Paribas argues adding “the combination of rising US front-end yields, continued JPY portfolio outflows and FX positioning should provide a backdrop against which USDJPY can rise.”
Credit Agricole view
Credit Agricole argues that the Japanese central bank has disappointed the markets during the announcement on Friday.
The latest monetary development can be regarded as smoothing market developments rather than strongly easing monetary policy further. “Hence the JPY ultimately reacted higher in reaction to falling expectations of the central bank considering a more aggressive policy stance anytime soon,” Credit Agricole added.
However, from a bigger picture, muted domestic conditions are likely to prevent medium term inflation forecast from rising sustainably and thus increasing the odds for a more aggressive stance for 2016.
“As such we stay of the view that the JPY should be sold on rallies, for instance against the USD,” Credit Agricole advises
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