The Takeaway: Japan’s monetary base rose 10.9 percent in January -> Monetary base is expected to rise further in early 2014 -> USD/JPY declined
According to the Bank of Japan, the monetary base in Japan increased 10.9 percent on year in January, following an increase of 11.8 percent in prior year. As the latest asset-buying program introduced by Japan’s Prime Minister Abe will not start until early 2014, the monetary base will further expand when there is more cash flowing into circulation and banks’ reserves. The expectation on more easing in Japan is in line with the recent risk-on sentiment shown in the capital market, in which we may see more Japanese capital flowing into risky assets, emerging market currencies as well as ESM bonds.
The graphs bellow show that the US monetary base and balance sheet both surged since September 2012 when the Fed launched another round of quantitative easing. On the contrary, there was a slight divergence between Japan’s monetary base and balance sheet, notably during November and December in 2012.
It is noteworthy to point out that the US monetary base has increased substantially from 2.68 to 2.74 trillion dollar on January 11, the same day when Japan’s Prime Minister Abe announced the untapped stimulus package. The US monetary base has remained at 2.74 trillion dollars since January 18.
The Yen has largely sold off build on expectations that the BOJ will debase their currency, even though the balance sheet shows there isn't a massive increase in asset purchasing.
USD/JPY, 1 Minute Chart
USD/JPY, Daily Chart
Charts Created by Robin Leung using Marketscope 2.0