Japan: If BoJ fails to impress the market, yen will strengthen - BBH

Research Team at BBH, suggests that there is a drama in Japan about Abenomics 2.0 that drove the yen 5% lower last week, before bouncing in thin activity on news of the coup attempt in Turkey. 

Key Quotes 

“This involves new fiscal and monetary stimulus.  In its extreme form, there has been more talk of helicopter money, which coincided with Bernanke's visit to Tokyo.  We suspect that some in Tokyo use foreign officials to help push their own domestic agenda. 

We have pointed out that on a consolidated basis, the BOJ's assets offset some of the central government's liabilities.  Under QQE, Japan's net debt on a consolidated basis has fallen.  However, as is the case for many central banks, the BOJ cannot buy bonds directly from the government.  This means that speculation that the government will issue non-marketable perpetual bonds which the BOJ will buy directly seems misplaced. 

Sequentially, the monetary lever may be pulled before the fiscal lever may be engaged.  The BOJ meets at the end the month.  If it fails to impress the market, this may strengthen the yen.”