BoJ full steam ahead - Westpac

Sean Callow, Research Analyst at Westpac, notes that since 31 Oct 2014 the Bank of Japan QE program has been running at an JPY80 trillion annual increase in the monetary base which equates to $66bn (using USD/JPY 101) per month, a very rapid pace by any standard.

Key Quotes

“However, its new focus on keeping the 10 year JGB yield around 0% means this pace is likely to vary – this line may not be so steep into 2017.

Japan’s CPI ex-fresh food weakened a little to -0.5% y/y in July, and CPI exfresh food and energy slipped to 0.3% y/y, a low since Oct 2013. The BoJ welcomes the fact that this measure is at least holding above zero.

Yen strength is an increasing headwind for the BoJ in reaching its inflation target. The 20% surge in the yen over the past year is producing a strong deflationary impulse at a time when policymakers remain frustrated by the weakness in wages growth.

At its Sep meeting, the BoJ dropped its projection of a return to CPI of 2% y/y by a specific date and instead looks to achieve this “at the earliest possible time.”