The race to the bottom in currencies is speeding up.
The Bank of Japan on Thursday rescheduled its next meeting to next Thursday and Friday from midmonth. The new time, it so happens, immediately follows the Federal Reserve’s own two-day session, which is expected to end Wednesday with an announcement that the Fed will buy even more U.S. assets to prop up bond prices.
The Bank of Japan says it accelerated its schedule in order to promptly discuss a plan it released Thursday to purchase shares of exchange-traded funds and real estate investment trusts, under Japan’s own latest tangle with so-called quantitative easing. The government said this month it would spend 5 trillion yen ($62 billion) in its latest reflation campaign.
But could the BoJ be planning something big – say, a new plan that would match the Fed’s latest dollar-sapping program with expand Japanese asset purchases, forestalling any further gains by the yen?
It could well be, writes Julian Jessop of Capital Economics.
“If the Bank of Japan does want to do more to cap the strength of the yen against the dollar, it might be a good idea to announce a significant increase in its own asset purchases in the wake of the Fed move,” he writes in a note to clients Thursday.
But one lesson of Japan’s struggles since its property bubble burst two decades ago is that just because something is a good idea doesn’t mean policymakers will actually do it. And so it is in this case, with Jessop saying hard-hitting new action is not all that likely:
Overall, there is no doubt that the Bank of Japan has an easing bias for the foreseeable future and in time the asset purchase programme may well be scaled up. But even if an increase is announced as soon as next week, presumably in response to another surge in the yen, it would probably still be relatively small compared to the QE anticipated in the US.
So no shock and awe out of Japan, it seems. As an aside, it’s worth noting that the real estate investment trusts the central bank is now planning on buying are the same ones that were made legal in 2000, in a bid to help wounded Japanese banks finally get troubled real estate investments off their books.
So after the Japanese government punted on its banks’ toxic asset problem, the central bank comes in a decade later and siphons up the dreck in the name of getting domestic demand rolling. Who is to say the Fed won’t be here in a few years? Say what you will about a race to the bottom, but it certainly can take some interesting detours.