There's a lot Kuroda could do to cheer markets. He should emulate Fed Chairman Ben Bernanke's Operation Twist, vastly extending the maturity of the BOJ's government bond holdings. He should load up on riskier assets such as corporate debt, asset- backed securities, exchange-traded funds and even equities. He should leave the door open to buy government bonds denominated in foreign currencies. And if the end of monetizing some Japanese debt justifies the means, why rule it out?

Yet nothing would declare that the BOJ is under new and bold leadership more clearly than dropping the so-called bank-note rule that says its government debt holdings can't exceed the value of all yen in circulation. That simple gesture would indicate that the Kuroda BOJ will be a vastly different central bank than the third-largest economy has had in more than a
decade.

“If the BOJ is to implement quantitative and qualitative easing that is to be effective in overturning the public's deflation expectations, it will have to venture much further out of its comfort zone in terms of the assets that it buys,” said Paul Sheard, chief global economist at S&P's in New York.

Eoin Treacy's view The markets have been willing to give the Japanese market the benefit of the doubt over the last few months as the new administration signalled a willingness to adopt structural reform and to change the policy stance of the BoJ by introducing a sympathetic new Governor. Following what has been a significant depreciation by the Yen and an even larger rally by the Nikkei investors are looking for additional evidence that the promises of policy reform will be kept. Following yesterday's rather steep pullback on Japanese equities, investors will want to see evidence of commitment to reform in order to maintain a medium-term bullish stance.

The Yen has fallen by approximately 20% versus the US Dollar since October and the pace of the decline has moderated over the last two months. The Dollar found support near ¥92.5 today, which represents the mid-point of February's range. A sustained move below that level would be required to question the overall consistency of the Dollar's advance against the Yen.

The Topix Banks Index hit at least a short-term peak in mid-March and has pulled back to test the 150 area. The Topix 2nd Section Index of smaller cap shares is often a leader and hit a short-term peak last week below 3200. It pulled back sharply yesterday and closed well off its lows today. The Nikkei-225 Index has posted its largest reaction in more than six months and also found at least short-term support today. A close beneath today's lows near 11,800 would be required to reaffirm this corrective phase.