BoJ: Investors are anticipating new monetary and fiscal stimulus in Japan - BBH

Research Team at BBH, notes that this week the yen has gone in the opposite direction and has lost 5% against the dollar. 

Key Quotes

“It has not seen a weekly decline of this magnitude in more than fifteen years.  Ideas that Japan will double down on Abenomics with new stimulative monetary and fiscal measures, with some risk of "helicopter money" whatever that means, encouraging yen sales and Japanese equity purchases.    The Nikkei gained 9.2% this week. 

It is not clear if Bernanke proposed that the Japanese government issue non-market perpetual bonds which the BOJ buys, or if his comments did not undermine such preexisting proposals in the internal discussion among policymakers. Even if this is a possibility, it is not a near-term course.  The BOJ, like many other central banks, are barred by their charter, to buy bonds directly from the government. Nevertheless, if the Abe government opts for a JPY10 trillion fresh water debt-financed spending program and the BOJ increases its JGB purchases by JPY10 trillion, the immediate results would be the same. 

In any event, the key takeaway is that investors are anticipating new monetary and fiscal stimulus in Japan, and this is the driver of the yen's weakness and the equity surge.  The BOJ meets at the end of the month, and details of the fiscal plans will likely around then as well.”