As expected, the Bank of Japan (BoJ) did not announce any new easing measures in connection with today's monetary meeting. The target for the annual expansion of the monetary base (the main policy instrument QE regime) was kept at JPY60-70trn.
The statement from the meeting turned only marginally more dovish than the previous statement from the August meeting. In today's statement, the BoJ acknowledges that housing investments have disappointed and continue to decline in the wake of the consumption tax hike in April (regarded as resilient in the August statement). At the August meeting, the BoJ acknowledged that the development in exports has been disappointing. However, BoJ still regards private consumption as resilient despite so far only a subdued recovery in retail sales in the wake of the consumption tax hike.
As expected, the BoJ did not change the wording in its outlook. It still believes the economy is recovering as a trend. Regarding inflation, BoJ expects the increase in CPI excluding fresh food and the impact from the consumption tax hike (the measure BoJ targets) to be broadly unchanged around 1.25% in the short term. The BoJ still expects to be able to reach its 2% inflation target at some stage in the second half of fiscal year 2015 (ending March 2016).
Most surprising to us, the BoJ did not change the wording in its paragraph on the risks to its outlook. It still refuses to acknowledge that the impact from the consumption tax hike is a major risk for its outlook. The main risks to its outlook continue to be only external (developments in emerging and commodity exporting economies, the European debt crisis and the pace of the recovery in the US).
Bottom line is that today's statement like the statement from the August meeting is only a marginal movement in a more dovish direction. Today's statement does not suggest that the BoJ has any intention of easing further soon. It is still unavoidable that the BoJ will have to cut its growth forecast in connection with its meeting on 31 October but there is less pressure to cut its inflation forecast. BoJ can take some comfort from the recent pick-up in wage growth and depreciation of JPY. This should ease some of the short-term downward pressure on the JPY. Hence the statement will probably continue to edge in a more dovish direction in the coming months but additional easing in 2014 looks less likely.
Finally, it should also be remembered that BoJ is already easing extremely aggressively and probably will continue to do so well into 2016 particularly if the consumption tax is raised again next year. This remains the main anchor for our call of a weaker JPY in the medium term in addition to the strong outlook for the US economy.
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