Forex Flash: Japanese foreign bond buying possible in 2013 – Nomura

Share | (Barcelona) - Nomura FX Strategists Yujiro Goto, Yunosuke Ikeda and Jens Nordvig believe that Mr. Abe´s swift action following the election appears to have forced the BoJ to consider a higher inflation target much earlier than they had previously expected, and may also suggest a higher possibility of a foreign bond buying fund, formed jointly by the MOF, BOJ and private institutions materializing.

While details are not yet clear, the policy was included in the LDP´s policy pledge as well as the 2% inflation target. They note that as there is a national level election again next year for the Upper House, Mr. Abe has a strong incentive to achieve his policy pledges as quickly as possible. His stance on territorial issues has been shifting to a more pragmatic stance as to not escalate the conflict against Japan´s neighbours, lending him to give up some pledges related to foreign affairs. Pursuing other policy objectives can be a double edged sword for the LDP as some of them could be unpopular among some groups of voters.

Therefore, the team feel that Mr. Abe and his cabinet are likely to pursue achieving his economic policy pledge, including the establishment of a foreign bond buying fund. The choice of the next BoJ governor is important for the changes and specifics of a future foreign bond buying fund. Some potential candidates for the next governor clearly support the BOJ‟s foreign bond buying idea while some are negative on the idea. Thus, details of foreign bond buying fund are likely to be announced after the BOJ leadership change.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Forex and Currencies

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