What to expect from Friday’s BOJ decision? - Barclays

The Research Team at Barclays provides a brief preview of the Bank of Japan (BOJ ) announcement due tomorrow, and expects BOJ to cut the deposit rate to -0.3% from current -0.1%.

Key Quotes:

“At the 28-29 July MPM, we expect the BoJ to ease in the form of a cut to the IOER rate applied to the policy-rate balance of current account deposits to -0.3% from the current -0.1%, along with an increase in the BoJ's annual ETF and J-REIT purchases to about JPY5trn and JPY150bn, respectively, from the current JPY3trn and JPY90bn, but we do not expect any increases in JGB buying”

“In terms of JGB buying, the drop in market liquidity received more emphasis in the BoJ's latest Financial System Report (released in April 2016) than it did in the previous one, and the prospect of buying operations going undersubscribed (unintentional tapering) has strengthened.”

“Also, if JGB buying exerts its influence on a stock basis, any further increases may only have a limited effect in lowering yields.”

“We do not expect the BoJ to adopt "helicopter money" in the form of direct BoJ underwriting and perpetual bond issuance (indeed, BoJ Governor Kuroda flat out rejected the possibility, as well as the need, in a BBC Radio interview conducted in June).”