22 May 2015
BoJ preview: Focus on QQE implications - Deutsche Bank
FXStreet (Bali) - Charlotte Leysen, Research Analyst at Deutsche Bank, notes that for today's BoJ meeting, the main focus will lie on the implications of continued QQE, adding that even if they were to increase QQE later this year, equities rather than FX would likely be the biggest beneficiary.
Key Quotes
"With the BoJ monetary policy meeting later today, the focus will return to the implications of continued QQE. The introduction of QQE in March 2013 saw both yen weakness and Japanese stock strength. But the last BoJ expansion in October 2014 saw much less follow through in the yen."
"Indeed, since December 2014 USD/JPY has entered a range, while Japanese stocks have continued to rally. Part of this may be due to yen weakness overshooting what Japanese money supply expansion would have suggested."
"Also valuations suggest USD/JPY is extremely expensive. Equities on the other hand continue to trend and have the most scope to perform – indeed equities are still undervalued compared to others (see third chart)."
"Moreover the BoJ is steadily buying equities and real estate.This source of equity demand is on top of buybacks, dividends and M&A deals. In fact these investments underline the BoJ’s interest to see a boost in the stock market."
"Therefore, even if they were to increase QQE later this year, equities rather than FX would likely be the biggest beneficiary."
Key Quotes
"With the BoJ monetary policy meeting later today, the focus will return to the implications of continued QQE. The introduction of QQE in March 2013 saw both yen weakness and Japanese stock strength. But the last BoJ expansion in October 2014 saw much less follow through in the yen."
"Indeed, since December 2014 USD/JPY has entered a range, while Japanese stocks have continued to rally. Part of this may be due to yen weakness overshooting what Japanese money supply expansion would have suggested."
"Also valuations suggest USD/JPY is extremely expensive. Equities on the other hand continue to trend and have the most scope to perform – indeed equities are still undervalued compared to others (see third chart)."
"Moreover the BoJ is steadily buying equities and real estate.This source of equity demand is on top of buybacks, dividends and M&A deals. In fact these investments underline the BoJ’s interest to see a boost in the stock market."
"Therefore, even if they were to increase QQE later this year, equities rather than FX would likely be the biggest beneficiary."