Deliberation a Safe Option for Bank of Japan

Andamento del mercato - 01/10/2015

It may be understandable that Japan is waiting for the results of monetary policy tactics currently being implemented in peer countries before installing any of their own, but waiting is itself a dangerous game. Japan’s economy is in need of intervention from their Central Bank, whose members have stated that the near-term need for monetary policy changes are not yet dire enough to justify intervention. The external situation shows otherwise, though the potential for the standby strategies of Abenomics to bluster may indicate that non-action is a real option. Second quarter results have outlined the sticky inflation problem the country is facing, and have resulted in a weak overall print. This is largely due to the current administration’s lack of apt financial mediation, leading to a qualitative easing program that has spent trillions and has failed to adequately keep the economy progressing.

 

After the revelation from Japanese policymakers, carry trades in USDJPY have unwound, partly due to optimistic job growth and unemployment statistics expectations for the US tomorrow and partly to Japanese trends. The expectedly strong jobs print comes alongside reports of 93 million US citizens that are currently outside the labor force. Japan’s economy suffers similar troubles, with reports earlier in the week displaying proof of a shrinking manufacturing and industrial sector. Focus remains on the Bank of Japan to solve these issues, with the nigh certain solution seemingly an expansion of quantitative easing. The problem facing the Bank lies in which pipeline to administer easing. Government bonds are becoming increasingly illiquid, and other assets are already sufficiently squeezed. As the Yen faces a tough period on the back of these facts, the USDJPY pair remains in a triangle pattern, with a breakout likely for tomorrow during imminent announcements on fundamentals in the US.

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