BOJ Leaks September Statement To Ease Investor Concerns That It May Be Tapering QE

In the aftermath of the BOJ's unexpected lack of action on July 28, fears emerged that the central bank may be on pace to scrapping or at least revamping its entire QE program when it announced it would conduct a "comprehensive assessment" of its monetary program. This in turn sent the Yen surging back to levels where it was before scattered reports emerged that Ben Bernanke was pushing Abe and Kuroda to unleash helicopter money.

So in order to quell any further such speculation, moments ago the BOJ appears to have "leaked" what its September statement would be, and as Reuters reported the BOJ has "already prepared a preliminary outline of a "comprehensive" assessment of its policies due next month that will maintain a pledge to hit its 2 percent inflation target at the earliest date possible, sources familiar with its thinking said."

The draft focused on the traditional mitigating factors which have hindered its attainment of its 2% inflation target, stating that the BOJ identifies sharp falls in oil prices, a prolonged hit to growth from a sales tax hike in 2014 and Japan's inability to shake off its deflationary mindset as hampering achievement of its inflation target. Officials had been drafting the outline weeks before the BOJ announced late last month that it will conduct the assessment at its next rate review on Sept. 20-21, sources said.

The draft is subject to change depending on debate by the nine-member board. 

The preliminary outline appears to make no direct recommendations on the future direction of monetary policy, though the general tone would suggest that a tapering of the BOJ's massive stimulus program is unlikely.

The BOJ eased policy in July but was not as aggressive as financial markets had expected, sending the yen higher and triggering a sell-off in the Tokyo stock market. Many analysts and traders fear it has little ammunition left and that monetary policy may be reaching its limits in terms of reviving the long-moribund economy.

The BOJ said it will conduct a thorough assessment in September of the pros and cons of its current stimulus program, which combines negative interest rates with a massive asset-buying scheme - dubbed "quantitative and qualitative easing" (QQE) - adopted in 2013.

So with little chance of a change in the BOJ's program, we now look forward to the first "uncovered" POMO by the BOJ, very much comparable to what the BOE experienced yesterday when it suddenly found itself in an "offerless" market as it was unable to find enough sellers to fulfill its daily gilt monetization quota of GBP1.17 billion in an operation that has stunned the European bond market and sent British yields to new record lows, and pushed short-term rates to negative levels. This also means that any speculation that central banks are taking their foot off the QE pedal will quietly fade away, if only for the time being.

What is more troubling perhaps is that instead of easing at least modestly, the Yen promptly rose, with the USDJPY declining the session lows on the news, suggesting the BOJ may be on the verge of losing jawbone control over the Japanese currency, as skeptical traders demand action, not soothing promises.