MW: Japan’s ‘competitive QE’ won’t work: Deutsche Bank
The Bank of Japan surprised markets Tuesday by announcing it would buy another 10-trillion yen in bonds, pushing the yen to its lowest rate against the dollar since December.
While a decent bump in the short-term, the new quantitative easing efforts are unlikely to pressure the yen over the longer term, leaving a relatively strong yen as a drag on growth and exporters, said Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank. See Currencies report.
Part of that is because even though ¥10 trillion is a big – 7% – expansion for the bank of Japan’s balance sheet, it’s a lot smaller than the efforts other central banks have made.
“The scale of actions being taken by major central banks elsewhere would all suggest that the impact on the yen will be largely limited to a brief (week or two) psychological boost for JPY shorts,” Ruskin wrote in a note Tuesday. Also, it may neutralize “the exchange-rate impact of other central banks’ QE, probably limiting the yen’s appreciation potential.”
In 2011, the Bank of Japan expanded its balance sheet by 11%. But last year, the U.S. Federal Reserve expanded its own by 19%, the Swiss National Bank’s grew by 33% and the European Central Bank expanded its by 36%, Ruskin said.
That “shows just how tough it is for the BOJ to keep up with the Joneses.”
For the currency, “clawing above and sustaining levels above ¥80 still looks a stretch,” he said. The dollar bought ¥78.48 yen in Tuesday trading.
