JAPAN: Data Watch: June Tankan release JULY 1st
Large Picture:
BoJ position on Current Account Reserves
Background
The BoJ's current tool for controlling monetary policy. The BoJ has been pursuing a policy of monetary "easing," similar to the ZIRP (Zero Interest Rate Policy) employed Feb. '99 to Aug. '00. Monetary/Quantitative "easing" is the textbook solution to counter deflationary pressures when growth rate is below potential and prices are dropping (technically lowering short term interest rates although ZIRP is interesting in that you've hit a floor at zero). Now in hindsight many consider the BoJ's abandoning of the ZIRP in '00 to be a mistake (the MoF tried to stop the BoJ but was unsuccessful). Monetary easing essentially signals to the market and provides for excess liquidity to bolster growth and expansion in the economy and subsequently raise CPI and end deflation.
Starting in '01 the BoJ began to "ease" again except now targeting reserves instead of short term interest (once you hit zero, you can't realistically target negatively, so reserves serve the same function of controlling monetary policy/liquidity) and using the Lombard lending mechanism (to keep interest rates from spiking through reserves liquidity).
Present Day:
The BoJ is split between whether to reduce their current reserve target from 30 - 35 trillion yen to 27 - 32 trillion yen (May and April BoJ meetings Mizuno and Fukuma both voted for reduction but other 7 board members voted to maintain). On the other end of the spectrum is Deputy Governor Muto and in the middle is Governor Fukui. Also of note in crossover drama is the MoF who is looking to curb the BoJ's independence after the ZIRP debacle of years past.
Potential Plays:
If market sentiment is that there will be a lowering of reserves, bond rates will pick up.
Market sentiment now is that the reserve target will remain through the year and so rates will stay depressed. (economically speaking, the BoJ should maintain the reserve target until a full out recovery is under way-not likely until maybe 2H06-because they need to signal clearly to the market, that they are fully commited to a recovery and to stave off volatility while letting the excess liquidity fuel bank lending and expand the economy-Taylor rule reading would be helpful here but I've been busy lately working at the restaurant)
-------------------------------------------
July 1: release of June Tankan
March Tankan (DI = Diffusion Index, the higher the better):
Large Manufacturers' DI: +14
Large non-Manufacturers' DI: +11
June Tankan (my guesses)
Large Manufacturers' DI: within -1 to +1 (BoJ will not move on policy)
Large non-Manufacturers' DI: within 0 to +2 (BoJ will not move on policy)
------------------------------------
Other dates/events to be watching for:
no time horizon-BoJ has been contemplating the release of 50 year bonds (points to consider, Japan's population is skewed with not enough young people to support those entering retirement).
June 28: 2 Year JGB acution.
June 29: Industrial Production
June 30: Housing Starts
July 1 : Tokyo Jun CPI, Japan May CPI, BoJ June Tankan Outline, Household Spending, Unemployment Rate and Job-offers/Job-seekers ratio.
---------------------------
additional reading: <1> <2> <3> <4>
BoJ position on Current Account Reserves
Background
The BoJ's current tool for controlling monetary policy. The BoJ has been pursuing a policy of monetary "easing," similar to the ZIRP (Zero Interest Rate Policy) employed Feb. '99 to Aug. '00. Monetary/Quantitative "easing" is the textbook solution to counter deflationary pressures when growth rate is below potential and prices are dropping (technically lowering short term interest rates although ZIRP is interesting in that you've hit a floor at zero). Now in hindsight many consider the BoJ's abandoning of the ZIRP in '00 to be a mistake (the MoF tried to stop the BoJ but was unsuccessful). Monetary easing essentially signals to the market and provides for excess liquidity to bolster growth and expansion in the economy and subsequently raise CPI and end deflation.
Starting in '01 the BoJ began to "ease" again except now targeting reserves instead of short term interest (once you hit zero, you can't realistically target negatively, so reserves serve the same function of controlling monetary policy/liquidity) and using the Lombard lending mechanism (to keep interest rates from spiking through reserves liquidity).
Present Day:
The BoJ is split between whether to reduce their current reserve target from 30 - 35 trillion yen to 27 - 32 trillion yen (May and April BoJ meetings Mizuno and Fukuma both voted for reduction but other 7 board members voted to maintain). On the other end of the spectrum is Deputy Governor Muto and in the middle is Governor Fukui. Also of note in crossover drama is the MoF who is looking to curb the BoJ's independence after the ZIRP debacle of years past.
Potential Plays:
If market sentiment is that there will be a lowering of reserves, bond rates will pick up.
Market sentiment now is that the reserve target will remain through the year and so rates will stay depressed. (economically speaking, the BoJ should maintain the reserve target until a full out recovery is under way-not likely until maybe 2H06-because they need to signal clearly to the market, that they are fully commited to a recovery and to stave off volatility while letting the excess liquidity fuel bank lending and expand the economy-Taylor rule reading would be helpful here but I've been busy lately working at the restaurant)
-------------------------------------------
July 1: release of June Tankan
March Tankan (DI = Diffusion Index, the higher the better):
Large Manufacturers' DI: +14
Large non-Manufacturers' DI: +11
June Tankan (my guesses)
Large Manufacturers' DI: within -1 to +1 (BoJ will not move on policy)
Large non-Manufacturers' DI: within 0 to +2 (BoJ will not move on policy)
------------------------------------
Other dates/events to be watching for:
no time horizon-BoJ has been contemplating the release of 50 year bonds (points to consider, Japan's population is skewed with not enough young people to support those entering retirement).
June 28: 2 Year JGB acution.
June 29: Industrial Production
June 30: Housing Starts
July 1 : Tokyo Jun CPI, Japan May CPI, BoJ June Tankan Outline, Household Spending, Unemployment Rate and Job-offers/Job-seekers ratio.
---------------------------
additional reading: <1> <2> <3> <4>
posted by howa at
6/27/2005
