Bank Of Japan (BOJ) Joins the QE Infinity Club!

Bank of Japan decided to keep an open ended Asset Purchase program, with the explicit target of 2% inflation, joining the likes of Federal Reserve in an ultra-easing monetary policy, and officially makes BOJ the card-carrying member of the Infinity (and beyond?) QE Club!

Here are the highlights of this BOJ meeting:

(JP) BANK OF JAPAN (BOJ) LEAVES TARGET RATE RANGE UNCHANGED BETWEEN 0.0-0.1%, AS EXPECTED; INTRODUCES OPEN-ENDED ASSET PURCHASES; SETS 2% INFLATION TARGET IN JOINT STATEMENT

• Voted 7-2 on 2% “price stability target” (vs “goal” prior); members Sato, Kiuchi voted against.
• Voted unanimously on open-ended asset purchases.- Voted unanimously on overnight rate decision.
• Board Member Miyao voted in favor to continue with virtually zero interest rate policy until 2% y/y CPI is in sight.
• Japan government, Bank Of Japan call for inflation target to be achieved “at the earliest possible time.”
• Bank to determine whether any significant risk to sustainability of economic growth exists.

Open Ended Asset Purchase Method:

• Amount of monthly purchases specified around ¥13T starting in Jan 2014: 
• ¥2T of which are JGBs and about ¥10T in T-Bills; Total size of Asset Purchase program to be increased by ¥10T in 2014 and maintained thereafter.
• To maintain ¥25T fixed-rate funds supplying operation.
• In addition to the asset purchase program, BOJ maintaining annual regularly purchases of about ¥21.6T per year (¥1.8T per month)

So without really getting into the rest of the report, you can clearly see that this is positive news for yen-short traders.  Of course, the 7-2 vote may spook some people, but ultimately BOJ is “playing ball” with the government and will continue with the open-ended program until inflation (CPI) rises to 2%. This means that for the past three years traders have been waiting for the infamous “carry” trade to return, and this may very well be the beginning of a long lasting carry-trade move that may continue through to 2014.

The idea now is not to overleverage and start building small positions when market dips, keep adding positions, and don’t be greedy.  The key is stay in the trade for as long as you can, and if you are still in the trade by January 2014, you’ll definitely be happy with the results, as with global economic improvements, risk appetite sentiment, and continued Bank of Japan easing, I wouldn’t be surprised to see USDJPY above the 100 ~ 110 level.

Thanks,

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