BoJ may expand easing, move further into negative rates:JPMorgan

Bank of Japan (BoJ) is expected to make a bigger move in its current policy meet, believes Ian Hui of JPMorgan. BoJ will come out with its statement on Wednesday.Speaking to CNBC-TV18, Hui says that the bank is likely to expand its quantitative and qualitative easing (QQE) as well as move more into the negative interest rate category. This will mainly help Japan support its spending and inflation target, he says. The government’s fiscal policy alongwith monetary policy will have to contribute together to tackle weakness in its market, believes Hui. Below is the transcript of Ian Hui’s interview to Prashant Nair and Ekta Batra on CNBC-TV18.Prashant: Let us talk about the bank of Japan (BoJ) which is going to announce its decision tomorrow morning. I would say there is a lot more buzz around the BoJ this time than there is around the Fed decision. What are you expecting? Compared to base line and what they are already doing, do you expect more Quantitative and Qualitative Monetary Easing (QQE), quantitative easing (QE) essentially their version, or do you expect them to disappoint the base line?A: Definitely a lot of questions on what the BoJ will be doing. We did see them take somewhat of a breather at their last meeting which did disappoint people. They did announce that they would have a comprehensive assessment of their own programmes and they would announce results in the next few days. So, the market will definitely looking forward to what they are going to do. I would personally think that they would expand their own QQE programmes and maybe perhaps, even further increase that their negative interest rate policy to become even more negative. I know the negative interest rate policy has not been taken quite so well in Japan by the banking and the financial industry, but I do think that there is more than they can do in that direction to try and support inflation expectations and spending in Japan.Ekta: What is your outlook on the yen because the BoJ is primarily going to try and weaken the yen? It is something that they feel, in their January meeting. Your sense on where exactly could we see the yen go? Do you expect significant weakness? Do you expect it to remain at current levels or maybe strengthen?A: This really will depend on what the BoJ action turns out to be. If it does turn out to be a bigger surprise than the market expects, if the market has got confidence in the BoJ moves, if it does turn out to be significant in terms of market expectations, I do think that we would see the yen weaken. If once again, it will be what is similar to happen last meeting, where the BoJ once again, does turn out to disappoint or does do a lot less than expected, then I would expect the yen to strengthen and that to be taken negatively by the Japanese market.Prashant: So, you are expecting them to be more dovish as compared to what expectations out there are? That is a yes?A: Yes, I would expect them to make a bigger move than expectated, if only to turn around the negative.Prashant: My point is there are various ways they could signal that, right? They could increase the quantum of asset purchases, they. So, they got these limits on how much they can buy each of these things, exchange traded funds (ETF), etc. So, they could take those limits out. Do we need to focus on those details as well or you need to just stick with the bigger message? Are they doing more, do they want to do more or are they sticking to what they are already doing in terms of asset purchases?A: For the market, it really will really show if they want to do more and expand their purchases, not only just through ETF but perhaps, through other instruments. If that did happen, that should be taken as a positive surprise, but as I said, we are currently pretty much in the wait and see mode along with the rest of the markets to see what they will do and pull off, if it will be bigger than expectations at all. I pretty much think that it is more important for the BoJ to surprise on the upside this time. It is not just the bigger message, it is the scope of what they would do.Prashant: After the European Central Bank (ECB) meeting, the week before last, when Mario Draghi showed a bit of unwillingness to commit to doing more immediately, global market rates, yields, etc. they all got shaken up pretty good and some fundamental questions were back in focus whether global central banks were changing track. Some even went to the extent of asking the question whether you will see more done on the fiscal side rather than on the monetary side which we have seen done over the last so many years. If the BoJ disappoints tomorrow, do you think those questions come up again and this could be a global market event then?A: Yes, definitely. I do think that if Japan does hold off once again, we will see the questions whether simply monetary policy will be enough. I do think fiscal policy from the government along with monetary policy will have to step in to combine and try and turn around the weakness that we have seen across various markets, especially Japan. But it will definitely be the case that if once again, Japan does hold off or what they announce does seem to be a disappointment for markets, they would definitely once again raise the question that monetary policy is running out of effectiveness.