The tug of war between the Bank of Japan and the newly installed government led by Shinzo Abe continues.
The central bank finally yielded to pressure from the administration to voice its commitment to a new 2 per cent target for inflation but did not commit to any deadline beyond “the medium term”.
It promised more open-ended easing but that will start only in 2014. The net increase in asset purchases for next year will be a mere Y4tn per month. Despite the bank’s rearguard action, faith in the short yen/long equities trade remains widespread. But the market may be too optimistic – not in believing that the Abe administration will prevail but in believing that the trade will work for any sustained period.
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