LONG USDJPY: ANOTHER BOJ OUTPERFORM CASE - 28TRN GOVT STIMULUSAnother argument for the BOJ outperform case - Post BOJ Buy $Yen @MRKT 111tp:
1. We know BOJ and JPY Govt Abe/ Aso have had many meetings post-brexit and as it follows the JPY Govt have announced today that they will deliver a fiscal stimulus package of 28trn - which was to the very right of the curve (10-30 was talked about).
- This in mind, imo it is rational to extrapolate that 1) surely if the JPY govt are choosing a tail end stimulus package (aggressive), BOJ will be inclined to do also? Given that it is the BOJ remit for economic targets like inflation, not the governments - BOJ wouldnt want to be seen as dropping the egg would they e.g. govt does as much as it can but BOJ only midly eases - doesnt make sense? Especially given the relationship between kuroda/ aso/ abe it would almost be impossible.
- 2) The BOJ will know/ see that the JPY Govt are taking the "extreme" side of measures, so once again this puts the BOJ under-pressure to do the same as they dont want to be seen as "letting the side down" especially as it is the BOJ who really has the power to change things - the Fiscal package is rather an indicative/ nice gesture of the govts willingness to help - rather than any real hard easing when you consider the Govt package is likely to be 28trn a year but the BOJ purchases/ injects 80trn A MONTH to its monetary based in JGBs - thats 960trn a year. So 27trn govt vs 960trn BOJ - is the govt really making an impact or are they instead signalling their commitment/ putting pressure on the BOJ? I think so.
Under-performance case:
1. Perhaps less meaty, but nonetheless a valid point - Japan, JPY Govt and BOJ have lived with low inflation/ deflation for the past several decades and no "extreme" action has been taken to resolve it (well not enough to fix the problem anyway) so this pressure on the BOJ we talk about above - is it real? or is it a theoretical pressure that they "Must" hit their targets?
- If history predicts the future then yes, it is a theoretical economic pressure - they haven't hit the target for 20yrs so why would they do measures to hit it now? There's no public pressure, im sure theyre happy consuming at lower prices - unlike with high unemployment.
- Off topic but it would be interesting to see a Japan with high Unemployment - an economic indicator that causes civil unrest (Greece riots) and is a necessity to be solved for the wellbeing of any nation - thus my bets are if unemployment was at 15-20% (similar comparison to deflation) for the past 15yrs something drastic WOULD have been done a long time ago, or be done on Friday to fix it. After all, theres no driver to fix something that doesnt really need fixing is there? Think about the last time you went to extreme measures to fix something that wasn't much of an issue...
