What To Expect Ahead Of The BOJ's Policy Announcement

Takeaway: Wall Street analysts overwhelmingly expect the BOJ to ease monetary policy. But does whatever the BOJ decides to do even matter?

What To Expect Ahead Of The BOJ's Policy Announcement - Kuroda cartoon 02.18.2015

 

Japan's Nikkei soared today, up +1.7%, as the country's Prime Minister Shinzo Abe announced a shockingly large fiscal stimulus package. Adding to all the shenanigans, helicopter money speculation reignited as the Wall Street Journal cited "people familiar with the matter" who said Japan was considering issuing 50-year bonds.

 

"... Every morning I wake up to a new headline about the next “yuuuge” fiscal stimulus package in Japan," Hedgeye Senior Macro analyst Darius Dale wrote in today's Early Look. "In a few short weeks, market expectations for the size of the post-election supplementary budget have nearly tripled from an anticipated ¥10T ($95B) to ¥28T ($260B)."

 

Meanwhile, the BoJ heads into its July 28-29 meeting with peak expectations of incremental monetary easing (22 of 28 analysts according to the latest Nikkei survey expect easing).

 

Some of that easing is already being priced-into Japanese equity and currency markets. The month-over-month performance numbers are as follows:

  • Nikkei: +8.9%
  • Yen (USDJPY): +3.7%

 

As we noted in today's Chart of the Day, "if you thought Japan's two lost decades were bad, just wait until the next ten year of what we'll affectionately term 'plunging into the abyss' happens." Japan's core consumption cohort, the 35-54 year old popultion, will decline over the next ten years. To which we ask:

 

Does whatever the BOJ decides to do even matter?

 

Bottom Line: If the policy board sticks with traditional QQE expansion, we would expect a short-lived JPY sell-off and Nikkei pop, but if the #BeliefSystem (that policymakers can prevent economic reality from occuring) in Japan was still intact then 10Y JGB Yields wouldn’t have come in by -9bps with 5Y5Y Forward Breakeven Rates declining -17bps MoM, according to our Macro team.

 

What To Expect Ahead Of The BOJ's Policy Announcement - jgb mom 7 27

 

What To Expect Ahead Of The BOJ's Policy Announcement - 5y5y forward japan 7 27

 

The #BeliefSystem is breaking down.


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