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BOJ Outpaces Fed in Easing as Yen Heads to 90: Chart of the Day

The Bank of Japan will outpace the U.S. Federal Reserve in printing money next year, putting the yen on track to weaken to about 90 per dollar, according to Bank of America Merrill Lynch.

The CHART OF THE DAY shows the dollar-yen rate and, in the lower panel, the monetary bases of the world’s largest and third-biggest economies since 2007. While the U.S. system had $2.64 trillion in November, about double Japan’s 124.4 trillion yen ($1.44 trillion), the pace of change differed in the past year as the BOJ stepped up its buying of government and corporate debt amid a recession. Japan’s central bank voted on Dec. 20 to expand its asset-purchase program by 10 trillion yen to 76 trillion yen after Shinzo Abe called for unlimited monetary stimulus before becoming prime minister this week.

“An additional 10 trillion yen increase in the BOJ’s balance sheet would weaken the currency by about 2 yen, based on the comparative pace of the Fed’s easing,” said Shogo Fujita, chief Japanese bond strategist at Bank of America in Tokyo. “If the BOJ expands by 20 trillion yen, 90 per dollar would be in sight,” he said. Fujita said he expects Japan’s government- and corporate-debt purchase program to be the larger amount in 2013.

The BOJ next meets on Jan. 21-22 and Governor Masaaki Shirakawa is due to step down in April. Abe was sworn in as Japan’s premier Dec. 26 after his Liberal Democratic Party won a majority of seats in lower house elections this month. He’s called for unlimited central bank liquidity to weaken the yen and stimulate growth in a country mired in deflation.

The yen lost 0.4 percent to 86.46 per dollar as of 9:22 a.m. in Tokyo, after touching 86.64, the weakest since Aug. 3, 2010. The currency has depreciated 15 percent this year, the biggest loser among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

The Federal Open Market Committee voted on Dec. 12 to supplement its $40 billion a month of mortgage-bond purchases with $45 billion in monthly Treasury purchases in the third round of quantitative easing. Last year, it implemented the so-called Operation Twist program, under which the Fed replaces its holdings of shorter-dated securities with longer maturity debt to lower borrowing costs.

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