BoJ Hints At More
The Bank of Japan made no changes to policy settings overnight, as widely expected. It was Governor Shirakawa’s last policy decision before his resignation takes effect on March 19th. There was some dissent though. Board Member Shirai voted in favour of (1) beginning open-ended asset purchases immediately rather than waiting until 2014 and (2) combining the APP and Rinban operations into a single program. Both are currently used to buy JGBs with the APP focusing exclusively on the short-end of the curve. Consolidating both programs would in theory give the BoJ greater freedom to buy longer-dated JGBs, which would very likely have yen-negative implications. Shirai is the first policymaker to call for this, but where she has led others may follow. The obvious willingness of Governor-nominee Kuroda to reconsider the ‘banknotes rule’ suggests he is already thinking along similar lines. Elsewhere AUDUSD coped unusually well with a larger than expected trade deficit. Finally, we lowered our year-end yen and sterling forecasts overnight. We now expect USDJPY to climb to 100 (from 85 previously) and we see Cable at 1.41 by year-end ( p r eviously 1.56).
Click here to read the full report: UBS Morning Adviser
UBS Investment Bank