In contrast with our expectations, the Bank of Japan (BoJ) kept its monetary policy unchanged at its 29-30 October meeting. In all, the BoJ continues to express a relatively complacent stance on growth and inflation and still expects a closing of the output gap and further tightening of the labour market, in combination with record-high corporate profits, eventually to lead to higher wage growth.
GDP growth and, in particular, the CPI forecast were revised down substantially but the BoJ still expects inflation to reach its 2% target in H2 16 and thus sees no need for additional easing right now.
In our view, today's stance from the BoJ suggests the bar for additional easing is 'very high' and we now expect the BoJ to continue its current QE programme with an annual target of JPY80trn until 2017.
We have lowered our USD/JPY forecast slightly, as the prospects of additional BoJ easing have declined. We now target USD/JPY at 121 in 1M, 122 in 3M and 123 in 6-12M.
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