BoJ expected to ease further tomorrow – Danske Bank

Analysts at Danske Bank see the BoJ loosening further its monetary conditions at tomorrow’s meeting.

Key Quotes

“We expect the Bank of Japan (BoJ) to cut its policy rate by 20bp to -0.3% and expect additional qualitative measures, including an upscaling of ETF and J-REIT purchases. We believe our forecast of BoJ easing will be a moderate positive surprise to the market compared with current pricing”.

“We expect the Japanese Government to announce a substantial fiscal stimulus package with a direct economic effect of JPY6trn (1.2% of GDP). We do not expect the BoJ to adopt helicopter money measures in the sense of a permanent increase in the monetary base or in the form of direct BoJ underwriting”.

“We expect USD/JPY to bounce 2-3 figures on the policy announcement but we do not look for a sustained rally in USD/JPY. On a 3-12M horizon, we expect USD/JPY to stabilise as further negative interest rates and continued portfolio outflows out of Japan would help to underpin USD/JPY and thereby counter the underlying support for JPY stemming from fundamentals. We target USD/JPY at 107 in 3M and 108 in 6- 12M.’