The Bank of Japan has fired the "QE2" starting gun with the announcement of a new asset purchase programme. The details, however, are unimpressive – further study will be required before buying starts and the current intention is to purchase ¥5 trillion over 12 months, or just $5 billion per month. It is unclear, moreover, whether the monetary base impact of the programme will be sterilised.

To put the initiative into perspective, the Eurozone monetary base is likely to have fallen by more than the full size of the Japanese programme last week as banks repaid 12-month borrowing from the ECB. (Figures are released tomorrow.)

Chinese monetary base figures are available only monthly with a lag but a recent rise in the one-week repo rate suggests that money market conditions have tightened.

A previous post, meanwhile, highlighted that the US monetary base had fallen to its lowest level since January.

Despite all the talk of QE2, therefore, there has been no expansion of the global supply of bank reserves. The ECB and Chinese monetary authorities probably oppose such an increase, while the Bank of Japan is a reluctant foot-dragger.

Hopes of a QE2 boost to financial markets rest full-square on the Federal Reserve and its European satellite, the Bank of England. The close ties between the two central banks were illustrated last week by MPC member Posen's decision to break cover and call for more QE just one week after the Fed had signalled an easing bias.

Fed action is unlikely before the next scheduled meeting on 2-3 November – a long time for impatient bulls to wait. Markets buoyed by QE2 optimism may require a positive MPC "surprise" this week to sustain their recent gains.