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29 Oct 2014
BOJ easing expectations decline slightly - Nomura
FXStreet (Bali) - According to Yujiro Goto, FX Strategist at Nomura, while BOJ easing expectations remain low for this year, expected downgrades in the Japanese economy and inflation forecasts this Friday should sustain market expectations for BOJ easing into next year.
Key Quotes
"The BOJ is reported to be considering downgrading its growth and inflation forecasts at its meeting on Friday (Nikkei and Bloomberg) (unconfirmed). Nikkei says that the median forecast of FY2014 GDP growth among board members will be downgraded to around +0.6% from +1.0%. As the economic slowdown in Q2, after the consumption tax hike, was much more severe than expected, and the recovery in Q3 has been weak, the downgrade will not be a surprise to the market. Rather, +0.6% growth forecast for FY2014 is likely to be regarded as optimistic, because the consensus forecast has already downgraded to +0.34%. The article says the Bank is likely to keep its growth forecast into FY2015 and FY2016 largely unchanged."
"Any changes in inflation forecast will be more important for the FX market, and Bloomberg reports that the BOJ is considering changing the expression on near term inflation recovery. The Bank had previously stated in its outlook report that "(inflation will) follow a rising trend again from the second half of this fiscal year." However, the article says now the BOJ is considering deleting the expression about the reacceleration trend from the second half of this fiscal year, as oil prices declined recently. As a result, the Bank is now considering lowering not only FY2014 but also FY2015 inflation forecasts, which have been more optimistic than market consensus. A downgrade in inflation forecasts and changes in expectations of near-term inflation recovery may not necessarily suggest the Bank is ready for a near term easing, but the changes, if they are made, would be regarded as dovish, in our view."
"Market expectations for near-term additional easing by the BOJ slightly declined further, according to Bloomberg. Only 9% of BOJ watchers expect an easing this week, and 19% now expect BOJ easing by year-end. The expected downgrades in economy and inflation forecasts this Friday will sustain market expectations for BOJ easing, which have been already scaled back significantly, and any dip in USD/JPY after the meeting will likely be small."
Key Quotes
"The BOJ is reported to be considering downgrading its growth and inflation forecasts at its meeting on Friday (Nikkei and Bloomberg) (unconfirmed). Nikkei says that the median forecast of FY2014 GDP growth among board members will be downgraded to around +0.6% from +1.0%. As the economic slowdown in Q2, after the consumption tax hike, was much more severe than expected, and the recovery in Q3 has been weak, the downgrade will not be a surprise to the market. Rather, +0.6% growth forecast for FY2014 is likely to be regarded as optimistic, because the consensus forecast has already downgraded to +0.34%. The article says the Bank is likely to keep its growth forecast into FY2015 and FY2016 largely unchanged."
"Any changes in inflation forecast will be more important for the FX market, and Bloomberg reports that the BOJ is considering changing the expression on near term inflation recovery. The Bank had previously stated in its outlook report that "(inflation will) follow a rising trend again from the second half of this fiscal year." However, the article says now the BOJ is considering deleting the expression about the reacceleration trend from the second half of this fiscal year, as oil prices declined recently. As a result, the Bank is now considering lowering not only FY2014 but also FY2015 inflation forecasts, which have been more optimistic than market consensus. A downgrade in inflation forecasts and changes in expectations of near-term inflation recovery may not necessarily suggest the Bank is ready for a near term easing, but the changes, if they are made, would be regarded as dovish, in our view."
"Market expectations for near-term additional easing by the BOJ slightly declined further, according to Bloomberg. Only 9% of BOJ watchers expect an easing this week, and 19% now expect BOJ easing by year-end. The expected downgrades in economy and inflation forecasts this Friday will sustain market expectations for BOJ easing, which have been already scaled back significantly, and any dip in USD/JPY after the meeting will likely be small."