Will the BOJ Disappoint Us?

04/02/2013 8:30 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

The yen's fall has gotten the world's attention, and the Bank of Japan could pull the chains even harder next week. MoneyShow's Jim Jubak explains the importance of this meeting.

The undoubted big event for the week ahead—hands down, no arguments accepted—is the April 3 and 4 meeting of the Bank of Japan.

It’s the first Bank of Japan meeting since the Central Bank got a new governor and a new deputy governor. It’s the first meeting since there’s been an official change of inflation targets from the old target of 1% to the new target of 2%, so the bank is going to try to aim for twice as much inflation.

In the run up to the meeting, we’ve had statements from the new governor and his deputies basically saying they’d like to see 2% inflation, as opposed to the 1% target or what we have right now—which is almost no inflation in Japan. They would like to see 2% within two years.

They said that they might do away with...the bank has a self-imposed limit that says it’s not going to add more to its balance sheet. It’s not going to grow its balance sheet beyond the money supply. They're talking about doing away with that.

The talk going into the meeting has been really, really aggressive. Which, of course, puts the basic bottom line of this policy is to weaken the yen. A weaker yen means more profits for Japanese companies. It means more sales for Japanese exporters. It means the financial markets go up.

It’s an attempt—maybe a last-ditch attempt—to get the Japanese economy running again, but this is really a big thing. And the more they talk about it ahead of time, the more downward pressure it puts on the yen now, which means you might get a rally in Japanese stocks, but also the more likelihood there is that they’re not going to quite live up to expectations. The higher they raise those expectations, the larger the possibility of some kind of disappointment.

So this is what we’re looking at right here: a huge, huge policy shift in Japan that is leading people to expect some big action out of the Bank of Japan meeting on the 3rd and 4th. I think longer term, the policy is certainly going to be as aggressive, as all this talk is indicating.

I think it’s a lot to expect that it’s going to go immediately in place, like a month after these guys take office; that’s really pushing the envelope. So there some possibility for short-term disappointment. But the weak yen, I think, is here to stay, until we go from about 95 to the dollar, which is where we are now, to 105 or 110 to the dollar. I think that’s probably the top of the range for this particular move.

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