Good morning everyone, I trust you all had/are having a relaxing holiday. I’m just swinging by for an hour or so to make sure the market is behaving itself.
Unlike my trousers after yestedays Christmas feast, the BOJ have stressed that it will stay ultra loose for the foreseeable future. One former member of the BOJ board, Atushi Mizuno has said that they may hold off expanding monetary stimulus until late into 2014, due to a possible shortage of new bonds to buy if the policy runs longer than 2 years. If that happens then he says they may shift policy to targeting yields only to either peg them or keep them in a set range.
“Instead of buying a set amount of JGBs each month, the BOJ could stem any spike in yields by directly intervening in the bond market whenever long-term rates rise above a certain level. If the BOJ were to try to keep bond yields stable and consider further easing, one idea that may be discussed is to peg long-term interest rates,” said Mizuno
He then went on to say that it would be around October when the BOJ looked at easing again as they would have enough data to see how the economy faired after the sales tax hike.
Full story from Reuters here.
There’s more than a few people in the market who think that the BOJ will act again in the spring but I’m of the view also that they’ll need to see the effects of the sales tax hike in the economy. Abe has said that he’ll be prepared to act if the tax slows the economy by adjusting taxes elsewhere and is looking at a corporate tax cut by way of stopping the surtax put in place to raise money for earthquake relief. One problem he needs to worry about is whether any tax cuts will just increase to companies cash piles rather than spent on investment and wages.
Abe is also unveiling his new economic growth strategy in June as he “intends to move forward on reform with his third arrow”
