TOKYO (AFX-ASIA) - Commerzbank chief economist Ron Bevacqua said the Bank of Japan has hit the ball back into the politicians' side of the court with its latest policy move.
"On the surface, the policy response seems extremely timid," he said. "The 1 trln yen increase in bank reserves is tiny. Regarding increased purchases of JGBs, the BoJ promised only to 'consider' such a move when it is necessary."
In addition, "the inflation 'target' does not bind the BoJ to do whatever is necessary to reach that target -- the BoJ is choosing to be passive, keeping policy on hold until CPI inflation is positive, rather than active."
Bevacqua added in a note: "Nevertheless, even modest steps toward quantitative easing and inflation targets are an historic about-face for the BoJ. With the taboo broken, further moves in this direction are likely.
"The message from today's meeting is that BoJ is flexible but further easing requires appropriate policies" from the ruling Liberal Democratic Party, Ministry of Finance and Financial Services Agency.
"For once it seems the BoJ is on the offensive rather than the defensive," he said.
Meanwhile, "the immediate impact on economic fundamentals, the banking sector and equity market sentiment is limited," Bevacqua said.
"The return to zero rates was already priced in. Increase in reserves and increased JGB purchases are probably too small or undefined to have much immediate impact."
However, "to the extent ... that these moves, and the implicit inflation target, change expectations about monetary policy ... the result should be lower bond yields and a weaker yen."