Michael Every, Head of Financial Markets Research at Rabobank, notes that there was no cut from the BoJ yesterday and no more QQE.
“What we saw instead was a pledge to overshoot the 2% CPI target if necessary, a promise more easing is to come if needed, a shift towards buying shorter-dated JGBs for now, and – crucially – a new framework of yield curve management. Initially, this will focus on maintaining 10-year JGB yields around 0%.
Will this policy work to fight deflation or curve flattening any better than the last one did? No. Japan’s problems are structural, not cyclical. However, the shift to direct yield curve management has arguably put in place a necessary – if not yet sufficient – condition for helicopter money. Indeed, all it would require now is a ‘temporary’ but huge supplementary budget from the government, one that gets steadily increased every year.”
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