The Bank of Japan (BoJ), as we expected, announced no new easing measures in connection with the close of its two-day monetary meeting this morning. The target for the annual expansion of the monetary base was maintained at JPY80trn. The decision was approved by a 8-1 vote with board member Kuichi continuing to dissent, arguing that the expansion of the BoJ's balance sheet is too aggressive and more time is needed to reach the 2% inflation target.
There were only minor changes to the statement from the previous meeting and overall no signs that the BoJ is moving in a more dovish direction despite recent weak data suggesting that the recovery remains fragile. In the description of economic developments, the BoJ added the following sentence: "Business sentiment has generally stayed at a favourable level." and hence downplayed the weaker than expected Tankan business survey result the BoJ released last week ahead of the meeting.
Overall, the broadly unchanged statement suggests that the BoJ remains far from a tipping point for more easing and has reduced the likelihood that the BoJ will announce new easing measures in connection with its more important meeting on 30 April. The BoJ will release revised economic forecasts at that time and downward revisions of its growth and inflation forecasts are possible, in our view.
It remains our view that the BoJ will not ease further in 2015, albeit we also acknowledge recent weak data has again at least started to shift probabilities in the direction of more easing.
JPY has strengthened slightly on the back of the less dovish than expected statement. It remains our view that there will probably not be much support for a weaker JPY from more BoJ easing in the coming months. That said, there are still three good arguments for a weaker JPY: 1) gradual normalisation of monetary in the US: 2) institutional investors in Japan diversifying away from domestic government bonds, and 3) the BoJ is already easing extremely aggressively.
To Read the Entire Report Please Click on the pdf File Below