BoJ Eases, But Not Enough
The Bank of Japan expanded its Asset purchase Program by a further JPY 11 trn overnight, taking the total target size up to JPY 91trn. It was a sizeable increase, but not enough to satisfy market expectations (which had been building since the beginning of last week). What’s more, the allocation to JGBs was only worth JPY 5 trn, adding to the sense of disappointment for those who were heavily positioned for USDJPY to push through 80.00. A further JPY 5 trn was earmarked for T-bill purchases, and the remainder will be spent on boosting the Bank’s holdings of ETFs, corporate bonds, and corporate paper. Further diluting the impact, the additional purchases are to be spread out over the whole of next year, rather than concentrated in the first 6 months of 2013. So as it stands, the monthly pace of JGB purchases is still scheduled to drop as we cross over into the new year. The BoJ also introduced yet another new lending program, but this one is similar in principle to the Bank of England’s Funding for Lending Scheme. The intention is to reward commercial banks with cheap central bank liquidity if the banks expand the provision of credit to the real economy. In Canada, the government cut its GDP growth forecast for 2013 to 2.0% from 2.4% while keeping the 2012 forecasts intact at 2.1%. USDCAD pushed above parity as Finance Minister Flaherty commented that lower commodity prices will affect the fiscal outlook. Ahead today, markets will pay attention to ECB President Draghi’s speech and data releases in the US including the August S&P/CS home price index and October consumer confidence index. The US Treasury market and stock markets are due to remain closed however given Hurricane Sandy reached the East Coast of the US overnight, so we anticipate light trading activity.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank