With SocGen and Goldman expecting nothing, but many others desperately hoping for more (2Y pricing in moar negative rates), tonight's Japanese trade deficit disappointment (11th monthly decline in a row) did nothing to help the chaos… and The BoJ waited the longest since 2014 to release its statement. Markets did their usual turmoiling bit with JPY dropping and Nikkei rallying from 2300ET… (on no news whatsoever) before the big decision was unveiled.
The BoJ waited the longest since 2014…
Since the last policy action (in Jan)…
Bonds were expecting a lot…
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And then the decision hit:
Disappointment on rates (no change)
- *BOJ MAINTAINS POLICY BALANCE RATE AT -0.100%
But it appears BoJ unleashes its reverse twist idea…
- *BANK OF JAPAN TAKES ADDITIONAL ACTION
- *BOJ TO INTRODUCE QQE WITH YIELD CURVE CONTROL
- *BOJ SCRAPS AVG MATURITY TARGET OF JGB HOLDINGS
- *BOJ TO BUY JGBS IN LINE WITH CURRENT PACE (disappointing)
And ups it ETF-buying…
- *BOJ: 2.7T YEN OF ETF BUYS FOR ETFS THAT TRACK TOPIX
Will do more jawboning…
- *BOJ TO ENHANCE FOWARD GUIDANCE
- *BOJ TO EXPAND MONETARY BASE UNTIL INFLATION STABLE ABOVE 2%
- *BOJ BOARD VOTES 7-2 ON GUIDELINES FOR MARKET OPERATIONS
So the bottom line is – bigger ETF buying, maintains rates (no easing), maintains bond-buying (no easing), unveils "yield curve control" (steepens curve but crushes bank balance sheets through long bond MTM losses)
But then they dropped the final tape-bomb…
- *BOJ: MONETARY BASE MAY FLUCTUATE TO ACHIEVE YIELD-CURVE CONTROL
In other words – QQE size may increase… which the market liked…
And the yield curve is steepening notably…
And banks are outperforming on the steepening…
"Whatever it takes" moment…
- *BOJ: COMMITTED TO EXPANDING MONETARY BASE UNTIL CPI EXCEEDS 2%
But as Enda Curran, Bloomberg's Chief Asia Economics Correspondent, notes,
there's a risk of disappointment here. It's far from the shock and awe we've seen before from the BOJ and the moves to control the yield curve appear modest, at first glance.
And one can see the disappointment in the market's response… 150 NKY points and one big fugure in JPY?
The BOJ says it will buy JGBs "more or less in line with the current pace" of 80 trillion yen. Most observers would have said such a change in commitment meant the BOJ was tapering, and would have anticipated gains in the yen. That may still be the interpretation and reaction in time.
And as far as the policy review, Bloomberg's Ken McCallum remarks,
Quick read through BOJ policy review suggests, surprise! It thinks the policy is doing a good job. Says expansion of monetary base has led to a rise in inflation expectations, while negative rates have pushed down the yield curve.
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Finally, because it's been a long night (and tomorrow will just make it longer), here is a littel humor (or not) as to where this leads…