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"If the BoJ had not announced the new framework last week, pressure from the market and the politics would have forced it to adopt additional easing at its next policy meeting on Oct 31/Nov 1. That would have triggered further JPY strengthening and a fall in stock prices that would most likely have completely destroyed the BoJ's credibility. As it is, because the Bank didn't exert any concrete measure such as additional interest rate cuts last week, it could save them for next year while avoiding such fatal failure.
We suspect, in doing so, the BoJ has passed the policy baton to the MoF (Ministry of Finance). In particular, when the Yen appreciates beyond 100 against the Dollar the possibility of intervention could strengthen. It goes without saying that the Japanese government would like to avoid it as much as possible amid the US-Japan relations in a particularly sensitive period ahead of the US presidential election and with TPP still up in the air. However, the Abe administration is said to be eyeing the fruits of the December visit by Russian president Vladimir Putin and an expected improvement in RussoJapan relations including on the disputed Northern Islands, as a springboard for a general election that Prime Minister Shinzo Abe is said to want to have early next year. A fall to 95 would generate new demand for hedging the past foreign investments by Japanese investors, with the resulting JPY buying spree accelerating another rise in JPY against USD, leading to a new negative downward spiral that could get USDJPY plummet toward 90. The political background described above cannot allow the monetary authority accepting such JPY strengthening without doing anything.
As such, we suspect the MoF would likely be forced to implement interventions when USDJPY breaks 100, even if it deteriorates relations with the US and other countries somewhat".
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