BoJ: broken down, still looking for currency weakness - Socgen

Kit Juckes, economist at Societe Generale explained that the BOJ decided to go on growing its balance sheet at around Y80trn per annum and left rates on hold, committing to go on doing so after inflation has overshot their 2% target. 

Key Quotes:

"The decision to target 10-year JGB yields at about zero, adding ‘yield curve control' to QQE, was the novel twist, aimed in part to counter the impact of low/negative rates (and flat yield curves) on the financial sector. But it is also part of the BOJ's continued focus on getting real interest rates and yields down, and inflation expectations up.

The BOJ's willingness to take the state of the financial sector into account reflects a realisation that policies which hurt bank earnings too much are at some point counter-productive for the wider economy. Bank share prices in Japan have bounced. Beyond that, the BOJ's policies depend on what others do.

Locking nominal yields at zero won't do much to help the Japanese economy if inflation expectations aren't high enough for zero nominal yields to be low in real terms too. Inflation expectations are sticky, but aside from hoping that (slightly) faster wage growth will help, what the BOJ wants yet again, is some currency weakness (even if they don't say so out loud). But locking JGB yields doesn't make them fall against Treasury yields (which might weaken the yen) unless Treasury yields go up. That's not what happened last week."