Extract from our "PM Abe’s First Arrow Hits the Bulls-Eye" research paper, published on the 4th April, 2013. Register for a free trial* to access the full paper.

Like July 26, 2012, when Mr Draghi gave the famous Bumblebee speech, April 4, 2013, will be recorded in economic history books as another watershed in extraordinary central bank actions. This is the significance of the BOJ’s announcement today. The ‘first arrow’ of Abenomics has just been fired, and Governor Kuroda hit the bulls-eye. What was announced this morning was clearly a paradigm shift at the BOJ. Adjusting for GDP, the BOJ is now programmed to print 2.2 times as fast as the Fed. In US dollar terms, what the BOJ announced this morning is equivalent to QE purchases of USD187 billion a month in the US. Investors were justified in feeling shocked and awed. This should lead to logical conclusions for the Nikkei (up) and USDJPY (up): we think 15,000 and 100 for these two assets are not just within reach in the not-too-distant future, as long as global equities hold up. Further, the efforts that were made by the BOJ to stay ahead of market expectations were remarkable as Governor Kuroda had to alter the sentiment of the Japanese institutional investors (JIIs), which so far have been selling into the rallies in USDJPY and Nikkei. Until the JIIs investment orientation is altered, USDJPY and the Nikkei will struggle to head higher. The main audience of the BOJ’s ‘shock and awe’ announcement was precisely the JIIs. We believe Abenomics has as good a chance in re-invigorating the Japanese economy as any attempt that has been made in the past generation, including the policies under PM Koizumi. Fading Abenomics is a risky investment strategy, as there seems to be substantial further upside to both USDJPY and Nikkei.

The full report contains the following sections:

  • The BOJ invented QE
  • Quantity
  • Quality
  • The time (ASAP) dimension
  • Communications
  • The second and third arrows are coming, to justify the first arrow
  • Bottom line

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