BoJ: How far is too far? – ANZ

By FXStreet FXStreet (Delhi) – Research Team at ANZ, notes that the BoJ surprised at the end of last week by announcing it would adopt a negative discount rate.

Key Quotes

“The BoJ called it “adding another dimension” to its policy tool box, which now has three dimensions: quantity (money base increase at JPY 80trn per annum); quality (asset purchases – principally JPY 80trn/per annum JGBs, also JREIT and ETFs); and now, negative rates.

The two main reasons why the BoJ has done this are: first to force financial institutions to either lend out or invest in risky assets any money that they receive from selling JGBs to the BoJ under the QQE, and second, to extend the life of its current easing policy given its inflation goal is proving elusive.

On the last count the BoJ highlighted growing downside risks to both the outlook for growth and inflation from the recent financial market turmoil. The backdrop for the latter has been the sharp drop in oil prices and uncertainty over EM growth prospects particularly China.

We would also add that wage dynamics are not going its way. In particular, wage increases are not showing enough of a pick up to generate 2% inflation …read more

Source:: FX Street