BOJ Governor Kuroda rejection of helicopter money sends USDJPY lower - BBH

Research Team at BBH, suggests that initially, the focus in Japan was on fiscal policy.  

Key Quotes

“We had been highlighting the reports that suggested a large package (~JPY20 trillion) was under consideration, but in recent days, the media has been emphasizing a smaller package (~JPY10 trillion).  However, today the talk is back at the larger figure, and this helped the dollar push through the JPY106.85 resistance we identified to reach almost JPY107.50.    

However, the dollar reversed lower, falling through yesterday's lows seen near JPY105.85 (setting up a possible key reversal) in response to BOJ Governor Kuroda rejection of helicopter money.  The market may have exaggerated the significance of Kuroda's remarks, but it shows the nervousness of the market going into next week's BOJ meeting after the dollar has rallied 7% against the yen since the US employment data on July 8.  Our first target is near JPY104.65, and then possibly JPY103.75.  

First, it is not clear what Kuroda means by helicopter money.  Some, like us, have suggested that given the scale of the BOJ's operations, and the fiscal position, Japan is already engaged in some form of helicopter money.  An advisor to Abe agrees.  

Second, the idea of the MOF issuing a non-marketable perpetual bond that the BOJ would buy is not practical any time soon, though it has captured many imaginations.  Like many other central banks, the BOJ is barred from buying bonds directly from the government.  

Third, in rejecting helicopter money, Kuroda kept the door open to extended QQE if needed.  If the BOJ does not ease policy next week, the yen is likely to appreciate again.  On the other hand, as investors have experienced, even if the BOJ does ease, it does not mean the yen will necessarily weaken.”