Some six years after the global financial crisis began, when the US housing bubble burst, global central banks are still easing monetary policy. The latest and most aggressive initiative was announced by the Bank of Japan. While the longer term impact of doubling the country’s monetary base has yet to be seen internationally, if the BOJ hits its newly adopted inflation target at 2%, current nominal JGB yields clearly support massive reweighting in favor of foreign bonds by the Japanese pension and life insurance industry. Such a move suggests USD/JPY at 120 at least in coming years. Further, BOJ policies will once again drive flows into smaller peripheral G10 currencies. With commodity prices now lower and output gaps still generally large, inflation risks lie on the downside in coming quarters.
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