BoJ Two-Day Meeting Begins
The Nikkei newspaper reported overnight that the Bank of Japan “will likely” boost asset purchases by about JPY1.2 trn per month. That would not in our view qualify as the “regime change” spoken of by Deputy Governor Iwata during his parliamentary confirmation hearings. In fact, additional easing on such a modest scale would only correspond to an annual increase of about JPY15 trn. However, the policy meeting which is currently underway is not due to conclude until Thursday, and the outcome is not yet set in stone. Also, the fine details will be as important as the headline figures themselves. Finally, even if the policy decision itself disappoints we would consider any subsequent USDJPY dip to be a buying opportunity ahead of the next meeting on April 26-27 when semiannual forecasts are due for revision. A fresh USDJPY positive reared its head overnight too, and ultimately led to a brief round of broad-based dollar strength. Chicago Fed President Evans − a known dove − tweaked his policy outlook. He announced that the Fed may choose to taper QE3 before end-2013. As recently as last week he had indicated that purchases should continue at the current pace until year-end. Evans went on to say he was optimistic that US growth would not stall in the second half of 2013, and he reiterated his view that growth would accelerate to 3.5% in 2014. When the doves start sounding less dovish we think it is worth paying attention. Elsewhere, RBA Governor Stevens had his seven-year term of office extended by a further three years. His initial term was due to end on Sept 17 – three days after Australia’s Federal election. Settling the question of succession this side of the election should be considered a modest longer-term positive for the Australian dollar as it removes a potential source of future uncertainty which would have been compounded by the political uncertainty surrounding the election o u tcome itself.
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UBS