BOJ Unexpectedly Reaffirms Readiness To Ease Further, Buy More Stuff

Just hours after we asked if the world's most famous "widowmaker" trade, shorting Japanese government bonds, is finally over, after bond traders remitted the most JGBs to the BOJ during Monday's rinban (POMO) operation, pushing the 10-to-25 year Offer-to-Cover ratio to 4.71, the highest in over 4 years amid investor fears that the BOJ's tapering of QE is accelerating...

... and could result in sharply higher bond yields, the BOJ scrambled to avoid an adverse reaction by the market, when overnight BOJ Governor Haruhiko Kuroda joined the rest of his central bank peers in making a hard-dove turn, saying on Tuesday the central bank was ready to ramp up stimulus if sharp yen rises hurt the economy and derail the path toward achieving its 2 percent inflation target.

The yen promptly tumbled after Kuroda’s comments, which confirmed that the BOJ has now officially joined the race to the currency bottom, launched by the Federal Reserve, which shocked everyone by turning full-blown dove last month and dragging the rest of the world's central banks with it.

"If currency moves are having an impact on the economy and prices, and if we consider it necessary to achieve our price target, we’ll consider easing policy,” Kuroda said, repeating that possible easing tools the BOJ could deploy included cutting short- and long-term interest rates, expanding asset buying or accelerating the pace of money printing.

That said, considering that the BOJ is rapidly running out of stuff to buy, as it already owns over 40% of the country's bonds and about 80% of its equity ETFs, the BOJ chief said the central bank would "carefully consider the benefits and costs of any further policy easing", suggesting that the hurdle for topping up stimulus would be high given how financial institutions’ profits have been hurt by years of near-zero interest rates.

“Whatever we do, however, we need to carefully balance the benefits and the costs of the step such as the impact on financial intermediation and market functioning."

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