Japan’s surprise monetary easing puts Korea under pressure

TOKYO – ANZ Bank believes the Bank of Korea will be under strong pressure to react following today’s surprise move by the Bank of Japan to expand of its quantitative and qualitative monetary easing measures. Financial market reaction was swift, with the USD/JPY moving from 109.4 just before the announcement to a high of 111.5, and the Nikkei rallying 4.8%. Markets across Asia were also impacted.

ANZ says thqt to some extent, Korea has attempted to avoid the prolonged sluggishness of domestic demand seen in Japan by flagging a high profile reform, often called ‘Choinomics’. “With the BoJ expanding on the scale of easing today, it will certainly catch the attention of Finance Minister Choi Kyung-hwan and no doubt that of BoK Governor Lee Ju-Yeol as well,” ANZ says.
“Recently, Governor Lee said that the central bank shouldn’t be obsessed with meeting its CPI goal, reflecting the BoK’s reluctance to cut rates further despite rising deflation risk (Sept CPI: -0.1% m/m). But the low growth, low inflation profile as highlighted by President Park Geun-hye offers an overall political backdrop for the BoK to act again.
“We now see the odds tilting towards a rate cut either at the November or December meeting, taking the policy rate to 1.75%. If the BoK does not act in November, the MPC voting result at that meeting will be critical. The weakening in the yen today has put depreciation pressure on the Korean won.” www.live.anz.com (ATI).