Ex-BOJ Muto: Increase JGB Purchases

As Citi's Todd Elmer notes, today's BoJ outcome looks far closer to 'shock and awe' than disappointment. It appears the BoJ's actions may speak as loud as their words for now - JPY is weakening and the Nikkei is rallying after Kuroda's last shot at a first impression appeared to beat expectations (covering for disappointing macro data - despite six months of jawboning and a 20% devaluation).

We recently introduced the four main candidates in the 'how easy can we be' glamor parade that is the BoJ Governor race. With Abe potentially set to name his nomination as early as this week, the rhetoric is heating up. Citi grades the BoJ governor candidates on a scale of 1 to 5 from the perspective of JPY bullish/bearish. Mr.Kazumasa Iwata will be the most JPY bearish candidate as he is a proponent of the BoJ’s foreign bond purchase.

In a surprise announcement, BoJ Governor Shirakawa announced that he will step down on 3/19 (a month ahead of schedule) and while Barclays notes that there had been talk at one point that Mr Shirakawa might step down in a bid to protect the BoJ’s independence in response to Mr Abe’s threats to revise the BoJ Act; the decision, however, appears to have been motivated by policy considerations (the desire to have the governor and deputies start together).

The Bank of Japan (BOJ) has pledged to ramp up its asset-buying program as part of an aggressive stimulus package, in the latest effort by a major central bank to loosen monetary policy and spur economic growth.   Newly appointed Governor Haruhiko Kuroda committed the BOJ to buying about ¥84 trillion of Japanese government bonds this year – the equivalent of 17 percent of GDP – dwarfing its previous target of ¥46 trillion yen.  

In our prediction two weeks ago of who the next Bank of Japan governor was likely to be, we said that "the tussle lies between a slightly less dovish bureaucrat in Toshiro Muto (favored by the opposition) and a banker, Haruhiko Kuroda, who is a front-runner in Abe's camp....

The world of central banking has gotten a little dull, lately, after a historic 2012. The ECB seems to be in neutral. The Fed's policy seems fairly clear cut. The center of action is Japan, where expectations of more easing (fiscal and monetary) has sent the Nikkei on a rocket ride since mid-November.