Monday, September 14, 2015

JPY: China slowdown may force BOJ for additional monetary easing - Nomura

FXStreet (Delhi) – Research Team at Nomura, suggest that the Chinese economic slowdown will force the BOJ to implement additional monetary easing, as it has said repeatedly that it will adapt its policy to the circumstances as required.

Key Quotes

“China accounts for around 15% of global GDP, and Japanese exports to China account for a similar percentage of total Japanese exports (value basis). Looked at in extremely simplistic terms, a 3ppt slowdown in Chinese GDP growth should therefore lead directly to a slowdown of around 0.5ppt in growth in global demand for Japan.”

“In this scenario, we think the BOJ would probably implement additional monetary easing in 2015 Q4, which we expect to coincide with the start of the sharp economic slowdown in China.”

“We think this additional easing would be likely to involve a bringing forward of the timing of the increase in risk asset purchases, including a doubling of equity ETF purchases from ¥3trn to ¥6trn, that we expect to be implemented in April 2016 in our main scenario. In our risk scenario, we also think that the BOJ might increase its JGB purchases in response to a major external shock.”

“Taking into account the impact of the economic stimulus measures discussed above. We expect FY16 real GDP growth to see the largest impact, as our forecast falls from 1.9% in our main scenario to 0.9% in our risk scenario.”
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