Barclays preview of the Bank of Japan announcement

  • At the 28-29 July MPM, we expect the BoJ to ease in the form of a cut to the IOER rate applied to the policy-rate balance of current account deposits to -0.3% from the current -0.1%, along with an increase in the BoJ's annual ETF and J-REIT purchases to about JPY5trn and JPY150bn, respectively, from the current JPY3trn and JPY90bn, but we do not expect any increases in JGB buying
  • In terms of JGB buying, the drop in market liquidity received more emphasis in the BoJ's latest Financial System Report (released in April 2016) than it did in the previous one, and the prospect of buying operations going undersubscribed (unintentional tapering) has strengthened.
  • Also, if JGB buying exerts its influence on a stock basis, any further increases may only have a limited effect in lowering yields.
  • We do not expect the BoJ to adopt "helicopter money" in the form of direct BoJ underwriting and perpetual bond issuance (indeed, BoJ Governor Kuroda flat out rejected the possibility, as well as the need, in a BBC Radio interview conducted in June)
  • According to Bloomberg's BoJ survey conducted 15-22 July, 78% of the economists were expecting further easing, of which 72% forecast more ETF purchases, 64% projected a further reduction in negative rates, 51% expected an increase in the pace of monetary base expansion, 46% predicted more buying of long-term JGBs and 36% forecast an increase in J-REIT purchases.

More:

  • In terms of fiscal policy, we forecast a package with direct economic stimulus effects of about JPY5trn (1% of GDP).
  • The media (eg, Nikkei, 22 July) earlier reported figures of JPY20-30trn (4-6% of GDP), but this sum reflects measures taken over several years and is mostly in the form of components such as credit lines from public lenders that will not give a direct boost to GDP.
  • On 26 July, the Nikkei reported that the package will exceed JPY20trn and be comprised of about JPY6trn in "real water" (actual fiscal expenditure) with only about JPY2trn funded by the FY16 second supplementary budget. The overall headline figure, it said, was inflated by such components as private-sector initiatives predicated on government subsidies.

--

  • The BOJ meet today and tomorrow
  • Announcement due tomorrow, there is no scheduled time but expect it sometime in the 0230 to 0330 time window (29 July 2016)