Flash Note 29/07/2016 Alex Fusté @AlexfusteAlex [email protected] Japan - Latest news about the monetary approach & markets (preparing for a not yet tried options?). • Markets o Japan markets closed higher Friday with the Nikkei up 0.56% and TOPIX up 1.20% to finish the week with small declines of 0.35% and 0.36% respectively. TOPIX sectors were mostly higher, led by a surge in finance stocks on the back of the BoJ's expanded easing. o Extreme volatility in all asset classes reflecting the heightened focus on the BoJ Meeting o Market disruptions by reports that JGB futures were temporarily suspended owing to a technical glich and a sharp drop in equity futures triggering a dynamic circuit breaker in TOPIX even before the BoJ decisions were announced. • Monetary Policy o BoJ board members voted (8-1 majority) to continue expanding the monetary base at an annual pace of about ¥80T. o Regarding asset purchases, board members voted (7-2 majority) to expand ETF purchases to ¥6T from the previous ¥3.3T, while voting (8-1) to maintain JGB purchases at an ¥80T annual pace, J-REITs ¥90B, commercial paper ¥2.2T and corporate bonds at ¥3.2T. o The bank decided (vote count 7-2) to continue applying an interest rate of minus 0.1% to the policyrate portion of the current account balances held by financial institutions. o BoJ weighs more easing amid increasing pressure for action: The highly anticipated BoJ meeting decisions for more easing against the backdrop of waning inflation and pressure from the government was accompanied by some assessment by the central bank suggesting that the BoJ is considering a "wide range of options," including those not yet tried. o Preparing the population for new stimulus? In fact, Reuters reported that the BoJ is considering specific Este documento ha sido realizado por Andbank, principalmente para su distribución interna e inversores profesionales. Este documento no debe ser considerado como consejo de inversión ni una recomendación de compra de ningún activo, producto o estrategia. Las referencias a cualquier emisor o título, no pretenden ser ninguna recomendación de compra o venta de dichos títulos. steps for expanding monetary stimulus. According to a draft statement, the government would welcome this decision and will deploy all necessary policy steps including a scheduled big stimulus package. o Government welcomes BoJ decision to ease: Comments from Japan Finance Minister Taro Aso reflected the government’s welcoming of the BoJ's decission to expand easing measures, adding that the government will work closely with the BoJ in undertaking monetary, fiscal and structural reform policies as a cohesive unit. o BoJ still sees core CPI reaching 2% inflation target in FY17: In the July Outlook for Economic Activity and Prices report, the BoJ maintained that the core CPI will reach its 2% price stability target during FY17. The bank assumes a moderate increase in crude oil prices, The statement noted "considerable uncertainties" accompanying the baseline scenario. • Data (Negative figures) o Deflation persists: June nationwide core CPI (0.5%) y/y vs (0.4%) in May. June BoJ CPI excl. fresh food & energy +0.8% y/y vs +0.8% in May o Private spending remains subdued: June household spending (2.2%) y/y vs (1.1%) in May, although retail sales up ticked +0.2% m/m vs (0.1%) in May o Construction is weak: June housing starts (2.5%) y/y +9.8% in May, June construction orders (2.4%) y/y vs +34.5% in May o On the positive side we had: June unemployment rate 3.1% vs consensus 3.2% and 3.2% in May. June industrial production +1.9% m/m vs (2.6%) in May Regards, Alex Fusté Chief Economist Andbank Este documento ha sido realizado por Andbank, principalmente para su distribución interna e inversores profesionales. Este documento no debe ser considerado como consejo de inversión ni una recomendación de compra de ningún activo, producto o estrategia. Las referencias a cualquier emisor o título, no pretenden ser ninguna recomendación de compra o venta de dichos títulos.