HALISTER1: BOJ RESEARCH ROUNDUP: Wide Range of Policy Easing in Store

BOJ RESEARCH ROUNDUP: Wide Range of Policy Easing in Store

(Bloomberg) -- Bank of Japan will deliver a myriad of policy easing measures tomorrow ranging from reserve and interest rate cuts to negative rates on loan support programs and expansion of QQE, according to 8 of 9 banks below including Goldman Sachs, Morgan Stanley, HSBC, Standard Chartered and Nomura.
  • Standard Chartered (Betty Rui Wang, economist)
    • Expects BOJ to ease in April due to market volatility and weak economy
    • Likely to expand quantitative and qualitative monetary easing by boosting annual ETF purchases by 3-5t yen to 6.3-8.3t yen
    • Central bank may also cut interest rate on its loan support program into negative territory, to -0.1%
  • HSBC (Izumi Devalier, economist)
    • Expects BOJ to ease policy this week
    • Additional easing measures to focus on “quantitative” and “qualitative” easing
    • BOJ will raise annual ETF purchases by 10t yen, taking monetary base target to 90t yen from 80t yen
    • Lower interest rate on loan-support programs to negative territory
    • Follow-through from fiscal policy critical to sustaining positive momentum
  • Goldman Sachs
    • Japan may show more credible commitment to inflate economy by taking permanent fiscal expansion steps together with expansion and/or extension of duration of JGB purchases by BOJ, Goldman Sachs writes in note received April 24
    • Could be a “pretty strong” policy mix that may help to boost inflation expectations
    • Expects USD/JPY to move higher again in near term and maintains its forecast at 130 in 12 mos.
    • See here for detail
  • Morgan Stanley (Takeshi Yamaguchi, Koichi Sugisaki)
    • Expects “full-scale 3-dimensional easing” of quantity, quality and interest rates, according to April 25 note.
    • Adds if BOJ meets MS’s expectations, Japan’s 20-yr govt bonds likely to outperform in a rally
    • “Tactical risks” for higher USD/JPY but recommends selling into this strength post-BOJ; yen is most fundamentally undervalued among G-10 currencies
    • See here for detail
  • Nomura (Naka Matsuzawa, chief rates strategist)
    • Expect BOJ easing this month
    • Recovery of functionality in money market, as indicated by recent decline in Libor, has made it more likely BOJ policy will attain its objectives not only for JGB market but also FX
    • BOJ aware of need for coordinated fiscal and monetary policy action, as stated in G-20 communique; likely intends to take action before market and govt begin pressing it to do so
    • Augmenting loan support program may help money market normalize further, enable BOJ to raise its monetary base target
  • UBS (analysts including Daiju Aoki)
    • Assigns 65% probability to BOJ easing on April 28
    • Expects “powerful” package of 20t yen increase in QQE purchases and a cut in interest on excess reserve rate of 20 bps; likely negative rate on lending facility
    • Conditions are no longer such that BOJ can stand by if it is to maintain expectations of achieving its 2% inflation target
    • Expected easing would serve to underline UBS’ year-end USD/JPY forecast of 122
  • SMBC Nikko Securities (economists Yoshimasa Maruyama and Koya Miyamae)
    • Bloomberg story last week that BOJ may be considering negative rate on some loans, show how deeply sensitive BOJ is now to FX market fluctuations; see story here
    • BOJ’s decision will probably be based on central bank’s view of possible currency-market reaction to no additional easing
    • If story proves right, BOJ seems to have adopted a strategy of letting financial markets price in move in advance, unlike the past where Governor Kuroda tried to surprise markets
  • Barclays (Akito Fukunaga, Naoya Oshikubo, strategists)
    • Difficult to see easing at April meeting, according to research note last week
    • BOJ may find it difficult to make assessment that strikes balance between cyclical picture and the effects of earthquake in the Kyushu region
    • No longer recommends 5-year-20-year steepeners or other positions in anticipation of future rate cuts; advises investors to lighten positions and focus on short-term relative value trades such as JGB 20-year-30-year steepeners
  • RBS (Andrew Roberts, head of European macro research)
    • Watch out for next leg of BOJ action in meeting this week
    • Sees rate cuts coming, more QE, more ETFs and TLTROs also on table at BOJ meeting
    • Sees weakness in yen toward 115.00 esp. into the meeting, but will not be chasing weakness on any medium- term view
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
8301 JP (Bank of Japan)

People
Akito Fukunaga (Barclays PLC)
Andrew Roberts (Royal Bank of Scotland Group PLC)
Betty Rui Wang (Standard Chartered Bank/Singapore)
Betty Wang (Standard Chartered PLC)
Daiju Aoki (UBS Global Asset Management Japan Ltd)

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