BoJ disappointment will create buying opportunity this week - SuMi Trust

Added 26th July 2016

Bank of Japan's meeting on Friday will create another Japanese equites entry point for those that missed the boat in mid-June, argued Katsunori Kitakura, lead strategist at SuMi Trust.

BoJ disappointment will create buying opportunity this week - SuMi Trust

The consensus among industry commentators and international investors alike is that Bank of Japan will announce further stimulus this week. The expectation is that the central bank will lower its inflation outlook and postpone the inflation target date to beyond the end of March 2018.

However if there are any further postponements, it decreases the likelihood that Kuroda will achieve the inflation goal during his tenure, and some believe that might make him act in the policy meeting this week.

But SuMi Trust's Kitakura doesn't believe Bank of Japan will make any bold decisions. "Kuroda may announce a lukewarm easing, but his announcement will fall short of market expectations. We expect that the BoJ will wait to coordinate with the government’s fiscal policy," he said.

"Only once the government has outlined its fiscal spending measures, do we expect the central bank to make a move," said Kitakura. This, he added, is likely to be in September.

While SuMi Trust doesn't expect any radical programmes of so-called "helicopter money" to be announced, it doesn't mean that the bank will disregard the market completely, in their view.

"The BoJ has acknowledged that investors have already discounted further easing but it is very likely to make an announcement or to send a signal to the market of future easing in order to maintain a positive outlook," explained Kitakura.

The strategist noted that past experience tells us what to expect. “If the BoJ announcement falls short of market expectations, the market will reverse to some extent, dragging down the equity market and pushing up the value of JPY," said Kitakura.

"On 16 June this year, the TOPIX fell by 2.8% and the yen rose by 2% after Kuroda left monetary policy unchanged. For those that thought they had missed the opportunity to buy Japanese equities as they quickly rose in price, this week’s monetary policy meeting could create another attractive entry point,” he continued.



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