BoJ Avoids Further Easing
The Bank of Japan fine-tuned its easing program at today’s policy meeting but, crucially, stopped short of delivering any net new balance sheet expansion. The target for T-bill purchases via the bank’s Asset Purchase Program (APP) was raised by JPY 5 trn, but the target for 3m and 6m loan provision was reduced by an identical amount. USDJPY jumped 40 pips, before giving back all gains within minutes. We see no reason to change our USDJPY forecasts on this occasion, but we do recognize that the BoJ’s purchase facility has become vulnerable to mission creep, and we remain on alert for future changes that could quite easily produce a yen-negative outcome. The BoJ also cut its 2012/13 core CPI forecast to 0.2% y/y (from 0.3% previously), but left the forecast for the following year unchanged at 0.7% y/y. Australia’s employment report for June disappointed on a number of fronts: overall employment fell -27k (cons. 0k) and the job losses were entirely of the full-time variety. The unemployment rate ticked higher to 5.2% as expected although the participation rate also dropped slightly. Our Australia economists conclude that the data – and the recent relapse in leading indicators of employment – suggests the unemployment rate will rise further and so they stick to their forecast that the RBA will cut the cash rate again by 25 bp in August, assuming Q2 CPI is low enough. Elsewhere, FOMC minutes published overnight showed little sign that the Fed is drifting towards another round of balance sheet expansion. Indeed only a “few members expressed the view that further policy stimulus would likely be necessary”. The US Treasury market was largely indifferent to these revelations, but US stocks temporarily weakened before eventually recovering in full. Ultimately the S&P500 closed flat on the day.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank