BOJ Concerned over Appearance of Monetization

Members of the Bank of Japan (BOJ) expressed concern that the recent increase in financial asset purchasing may be misinterpreted by the public as the bank financing government spending, according to the minutes released from their April 27 policy meeting on Monday. The bank had elected to expand asset purchasing from 65 trillion yen to around 70 trillion yen. The increase fell in line with expectations and would carry through with an increase to long-term government Japanese bond purchasing from 19 trillion yen to 29 trillion yen and reduction of the six month market operations.

According to the release, “A few members added that, considering that the amount of the BOJ’s JGB purchases was becoming significantly large in scale, due attention should be paid to preventing the BOJ’s powerful monetary easing from being misunderstood as monetization. On this point, members shared the view that, given that the BOJ was pursuing powerful monetary easing in a severe fiscal situation, it was extremely important that the credibility of fiscal sustainability in financial markets be maintained.”

Additionally, the bank had maintained the almost zero interest rate through a unanimous vote during the policy meeting in order to continue their commitment for stimulating economic growth along a more sustainable recovery path. Furthermore, the BOJ extended the maturity of Japanese government bonds it was purchasing under the temporary asset-buying program from one to two years to one to three years.

The bank continues to keep focus on the battle of deflation in the country and stated success could only be achieved through continued efforts by business firms, financial institutions, and the government alongside the bank.

The USDJPY traded sideways on a quiet day ahead of the bank holidays in U.S. and Europe. Our preference is to go short the USDJPY on pullbacks with targets at 78.10. The pair has been trending in a downward channel since reaching highs near 83.80.

Eugene Ross, Analyst

Admiral Markets

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