The Bank of Japan has kept its monetary base unchanged for 2016, which will remain at the annual pace of 80 trillion yen. Nevertheless, the average maturity of its Japan government bond holdings will be increased to 7-12 years from 7-10 years and the central bank has surprised financial markets by announcing Exchange Traded Funds purchases will be increased. Under this new program, the BoJ will increase its ETFs purchases by yen 300 billion which account for the time being for around 3 trillion yen.
Kuroda tried to instil confidence in the Japanese economy after recent data (business confidence, capital spending) surpassed expectations. We believe that the BoJ, despite this attitude, is only trying to find more ways to stimulate the economy as the current program is clearly not sufficient. The era of free money will continue and except for recent positive data such as improved business confidence, we have the impression that the BoJ is entering an all-in stage. The truth is that “Abenomics” is failing and confidence in the economy should not be mixed up with the results that this economy is providing. We remain bearish on the Japanese currency and target the yen 125 against the greenback over the medium-term.