John Vail, chief global strategist at Nikki Asset Management, who is also positive on the outlook for Japanese stocks over the next 3-6 months on expectations of further weakness in yen, agrees the Bank of Japan will commit to unlimited monetary easing.
“The BOJ will come under increasing pressure, and will comply with pressure adopting a 2 percent inflation target,” he said. “When you are seeking an inflation target, it implies unlimited easing.”
The central bank will step up its purchases of risk assets including equity exchange-traded funds, Vail added, which will provide additional upward momentum for stocks.
Bank of Japan governor Masaaki Shirakawa, who has been criticized for not easing monetary policy aggressively enough, is expected to step down when his term expires next April. His replacement, Smith said, will be selected for their “willingness to print money.”
Smith and Vail are not alone in their enthusiasm towards Japanese equities. Michael Harnett, chief investment strategist at Bank of America Merill Lynch believes if the LDP were to gain control, it would “significantly” alter the landscape of Japanese politics and change monetary policy into one that’s more pro-growth and inflationary.
“We believe this would be yen negative, equity positive and Japanese government bond negative,” he said.
However, Mark Matthews, head of Asia research at Bank Julius Baer is skeptical that the opposition party will be able to undermine the independence of the country’s central bank and dictate the direction of monetary policy.
“It’s very nice to hear the LDP talking about forcing the BOJ to buy bonds, but you can’t force them. The BOJ’s independence is enshrined in the constitution. So just because the LDP says it’s going to force the central bank to do things it doesn’t mean it actually can,” he told CNBC Asia’s “Cash Flow”.
Via – CNBC
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