If the BoJ implements additional QQE, yen’s depreciation and risky asset avenues rally could be restrained or momentary, which may lead to a larger risk of the BoJ trailing buoyancy.

Well, ‘Abenomics’ has been functioning effectively in the past, because the BoJ’s QQE policy could monetise -

Revived net domestic fund demand 

The monetary economy could expand, leading to further yen depreciation

Expansion of nominal GDP

But on the contrary, few analysts are dubious despite previous successes, as BoJ’s policy is now at a turning point. Net domestic fund demand, which is the sum of the corporate savings rate and the general government fiscal balance, is shrinking.

As net domestic fund demand needs to be monetised by the BoJ’s QQE, the effect of QQE is lessened if there is little net domestic fund demand (fewer funds to monetise).

The current situation indicates that, just like the 2000s, the effects of the BoJ’s QQE measures are becoming weaker. In fact, there is also a risk that by deciding not to implement additional QQE measures, the market could move towards a stronger yen and sluggish stock market.

It is important that, when Japan hosts the G7 Summit in May, the country takes a leadership role in ensuring demand is created on a global scale.

Japan’s trade balance has already returned to a surplus. The volatility of the USD/JPY exchange rate is also stabilising.

Under such circumstances, there is a risk that additional QQE by the BoJ will be perceived as using monetary policy as a currency devaluation tool.

The BoJ’s negative rate policy was probably the right decision, as without the move JPY could be much stronger.

Evidently, we’ve seen almost more than 15% drop in USDJPY in last 9 months, and more than 18.5% drop in EURJPY in 17 months, while GBPJPY slumps over 20% in just 11 months.

Unless the BoJ revises down its outlook on the economy and inflation to a large extent, it will be politically difficult to take such action.