I won’t go into huge depth about the BOJ meeting, but it’s fair to say they delivered the minimum. The vote count painted the clearest picture and there was little appetite to increase the run-rate of increasing the monetary base.
Undoubtedly the key point has to be that Kuroda has ‘ordered an assessment of policy effectiveness at the next meeting’. On page 3 (point 5) we can see they actually identify a review of negative rates and economic activity and prices under QQE.
Is this guidance that we may actually see negative rates being reversed? I suspect it could be….It’s obvious that there has been a mini credit crunch in Japan and the banks have underperformed. Negative rates haven’t worked, in fact they have been a huge negative.
The moves in the TOPIX banking sector today was also prominent, with banks initially pushing up as they would have been pricing in an element of deeper negative rates (think worsening margins).
The moves in JGB futures has been even more prolific and the 10-yr has had one of the biggest moves since 2013. This is a sign that negative rates could be reversing, while some could have been expecting both an increase in the monetary base target and even a hint of Helicopter Money.
USD/JPY has been hit hard, perhaps not as hard as I had expected given the implied volatility. One could have bought a ¥104.50 straddle for 266 points, so the breakeven was ¥101.84. However, a daily close through 102.86 suggests we revisit the July lows of ¥100.00.
In a nutshell we may have seen an admittance that monetary policy doesn’t create price pressure. Something many market participants have known for a while.