By Wayne Cole
SYDNEY (Reuters) - The Bank of Japan's shock decision this week not to provide additional stimulus to the struggling Japanese economy has prompted some investors and traders to bet that policy makers are out of bullets, clearing the path for further gains in the yen.
After BOJ Governor Haruhiko Kuroda on Thursday dashed expectations of more easing, the yen has been on a tear. It yen spiked 2.6 percent to 108.11 against the U.S. dollar
Kuroda has been at the forefront of Japan's efforts to escape the debilitating drag of deflation, launching massive asset buying campaigns before taking interest rates negative earlier this year.
For him to pause on policy, even if only to gauge the impact of past easing, alarmed markets addicted to ever-more aggressive and exotic stimulus measures from the world's boldest central bank.
"The sneaking doubt here is that perhaps we're witnessing the end of the great monetary easing experiment and that's obviously a very dangerous path for the BOJ," says Frederic Neumann, HSBC's co-head Of Asian economic research in Hong Kong.
"The pressure will only grow for the BOJ to do more," he adds. "Without any further action, it is fairly likely that the yen would continue its upward trajectory and equities will continue to be under pressure."
Kuroda did on Thursday leave the door open for more stimulus, stressing there were no limits to what monetary policy can do to address strong risks to the outlook.
"There's absolutely no change to our stance of aiming to achieve 2 percent inflation at the earliest date possible, and to do whatever it takes to achieve this," he told a news conference. "If needed, we can deepen negative rates much more."
The BOJ cut its inflation forecasts in a quarterly review of its projections, also on Thursday. And it again pushed back the timing for hitting its 2 percent price target, by six months, saying it may not happen until March 2018 at the latest.
The yen's resurgence was also an echo of the euro's reaction in March when European Central Bank Governor Mario Draghi said that further cuts in interest rates would not be needed.
Despite launching an expanded package of asset buying, the market took the euro almost 2 percent higher that day and the single currency has been on the rise since.
Just Friday, the ECB's chief economist, Peter Praet, told a Spanish newspaper that the inflation outlook would have to worsen significantly to warrant another rate cut.
The U.S. Federal Reserve has already started to turn off the spigots pouring money into the global economy with its halt to new quantitative easing and interest rate rise late last year.
THE END OF GLOBAL STIMULUS?
"We have now seen both the ECB and BOJ show a degree of reluctance to deliver further easing, despite ongoing inflation weakness and currency strength," said David Cannington, a senior economist at Australia and New Zealand Banking Group.
"Is it a sign that the significant and unprecedented monetary policy action globally is drawing to a close?" he asked.
He said that if that was the case, some of the distortions these policies have created, particularly in currencies, could dissipate.
Others, however, argue that policy easings take time to have an impact, often months, and it was only reasonable for central banks to pause to weigh whether they were working.
Some also said they suspected Kuroda wanted to launch the sort of shock and awe campaign that had an actual chance of shaking the Japanese public out of its deflationary mindset. That meant waiting for the right moment rather than taking piecemeal steps.
"Even as markets brood over being snubbed by the BOJ, the broader perspective is that the BOJ simply deferred, rather than decided against, further stimulus," argued analysts at Mizuho.
They say they believe Kuroda was readying for major action mid-year, when the case for bold moves would be reinforced by softer inflation and chronic weakness in industries and exports.
"If so, it could prove to be one sweet summer for BOJ trades - short-yen and long-Nikkei."