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6 Feb 2015
BoJ unlikely to scale back JGB purchase – BAML
FXStreet (Barcelona) - Shuichi Ohsaki and Shusuke Yamada of BofA-Merrill Lynch, are of the opinion that BoJ will maintain its QQE, bringing yields lower, yen weaker, and NKY higher.
Key Quotes
“We still view the BoJ's operations failing before the 2% inflation target is reached as a risk scenario, albeit one whose probability of occurring is not that low.”
“In that case, if the BoJ continues with its buying operations even in the event of failure, as it did in its TDB buying operations, it will have a downward impact on yields, but if it modifies how it conducts its operations, it could also have an upward impact on yields.”
“Given the increased interest rate differential and lower risk premium so far has contributed to the yen depreciation and rise in share prices, the impact from a potential rise in yields would temporarily be toward strengthening the yen and weakening share prices.”
“But the flip side of the story is that, because it would inevitably result in unintentional monetary tightening, the BoJ is unlikely to opt for the approach of scaling back the JGB purchase.”
Key Quotes
“We still view the BoJ's operations failing before the 2% inflation target is reached as a risk scenario, albeit one whose probability of occurring is not that low.”
“In that case, if the BoJ continues with its buying operations even in the event of failure, as it did in its TDB buying operations, it will have a downward impact on yields, but if it modifies how it conducts its operations, it could also have an upward impact on yields.”
“Given the increased interest rate differential and lower risk premium so far has contributed to the yen depreciation and rise in share prices, the impact from a potential rise in yields would temporarily be toward strengthening the yen and weakening share prices.”
“But the flip side of the story is that, because it would inevitably result in unintentional monetary tightening, the BoJ is unlikely to opt for the approach of scaling back the JGB purchase.”