Ahead of the July meeting, markets were expecting the BoJ to take aggressive action to reverse the rebound in the Yen since January. But in the event, the BoJ only raised the size of ETF purchases from JPY 3.3 tn to JPY 6.0 tn per annum, something seen as incremental by markets when compared to JGB purchases of JPY 80 tn annually. Perhaps in an effort to head off adverse market fallout, Governor Kuroda announced a “comprehensive review” for today’s meeting, with the aim of reviewing the effects of QQE since its introduction. In the event, the “comprehensive review” brought fundamental changes.
The BoJ is moving away from quantity targets and switching to yield curve targeting, specifically committing to keeping the 10-year JGB yield around current levels (our rates team’s forecast for year-end 2016 is 5bp, and we are not changing this). We see this shift as an elegant way to end the market debate over JGB scarcity, which we have on various occasions argued never made much sense to begin with.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
