Preview of the BOJ announcement due on 31 October 2014

The Bank of Japan (BOJ) meet on Friday (October 31) and will announce (no change is expected) during the Tokyo session. There is no set time for the BOJ announcement … they’ll do when they are good and ready, thank-you …. though it will most likely come some time after 0230GMT.

  • At his meeting, too, the bank will release its semi-annual Outlook Report, which includes updated forecasts for inflation and growth (growth expectations are likely to be revised lower)
  • As we get further away from the April 2013 launch date of QQE it is becoming clearer that the BOJ is unlikely to reach its 2% inflation target within the two-year timeframe … indeed comments from the bank recently are preparing the market for this. The target has some ‘flexibility’, some time within fiscal year 2015 is acceptable (which means calendar 2016 is acceptable) etc.
  • But that does not mean the BoJ will not keep its positive assessment on prices intact tomorrow – it seems likely to maintain its positive view on prices over its forecast horizon, and thus dismissing (at this stage) calls for further easing

The BoJ is most likely to want to see additional clarity on the future of the second consumption tax hike in 2015 before embarking on any more large-scale stimulus … and … this from SocGen …

  • The BoJ cannot move before the release of the Q3 GDP result on 17 November, which is expected to rebound from the negative GDP growth seen in Q2.
  • The BoJ may bring forward the timing of additional QQE measures to November or December if the following two conditions are met:
  • 1) Q3 GDP growth turns out to be much weaker than expected and is negative for the second quarter in a row (it is highly likel y that the growth rate will be positive: our Q3 GDP forecast is above 3.0% qoq annualised);
  • and 2) September – November CPI (ex fresh food and ex the influence of the CT hike) also turns out to be much weaker than expected and falls well below 1% yoy despite BoJ governor Kuroda’s confidence that this will not happen.

Currently, market expectations are for more BOJ easing in Q1 or Q2 of 2015

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On the yen, bear in mind that the government and some corporates are now wary of the speed of the recent yen depreciation, and neither have been shy to express their views, loudly and repeatedly recently. 110 on USD/JPY appears to be a pain threshold for the time being and will be a tough nut to crack.