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6 Aug 2014
BOJ easing expectations decline slightly - Nomura
FXStreet (Bali) - BOJ easing expectations continued to decline in July, notes Nomura.
Key Quotes
Market expectations for BOJ easing have fallen slightly further, according to a Bloomberg survey. No BOJ watchers expect the Bank to ease at the meetings in August and September, unchanged from the previous survey.
However, in the previous survey 12 researchers out of 34 (35%) expected the BOJ to ease at either of the two meetings in October, while now nine researchers (26%) expect the Bank to ease in October (one on 7 October and eight on 31 October).
In early June the majority (55%) of BOJ watchers expected the Bank to ease by end-October, so market expectations for the BOJ are now quite subdued compared with just a few months ago.
At the same time, the change in market expectations over the past month was smaller than the changes in previous months.
On top of the recent deceleration in inflation momentum, recent weak economic data, which are leading private forecasters to downgrade their economic forecasts, are behind the smaller changes in the expectations for the BOJ.
In fact, Bloomberg reports that the BOJ officials are concerned about weak output data, considering more cautious language on output in the statement this week. The Bank is also reported to be discussing a possible cut to the assessment of exports.
While a slowdown in economic activity is expected in Q2, the weaker-than-expected reading for industrial production in June with higher inventory is making the Bank less optimistic about economic momentum. The Bank may need to consider lowering the FY2014 economic forecast again at the meeting in October.
As Governor Kuroda remained confident that the economy is continuing to recover moderately in his latest speech, the likelihood of near-term BOJ easing remains small, in our view. Market expectations for October easing may remain for the time being, because of weaker economic data.
We think a small disappointment from the Bank in October is possible. Nonetheless, the divergence between US and Japanese monetary policies should be more prominent, supporting USDJPY in the medium term .
Key Quotes
Market expectations for BOJ easing have fallen slightly further, according to a Bloomberg survey. No BOJ watchers expect the Bank to ease at the meetings in August and September, unchanged from the previous survey.
However, in the previous survey 12 researchers out of 34 (35%) expected the BOJ to ease at either of the two meetings in October, while now nine researchers (26%) expect the Bank to ease in October (one on 7 October and eight on 31 October).
In early June the majority (55%) of BOJ watchers expected the Bank to ease by end-October, so market expectations for the BOJ are now quite subdued compared with just a few months ago.
At the same time, the change in market expectations over the past month was smaller than the changes in previous months.
On top of the recent deceleration in inflation momentum, recent weak economic data, which are leading private forecasters to downgrade their economic forecasts, are behind the smaller changes in the expectations for the BOJ.
In fact, Bloomberg reports that the BOJ officials are concerned about weak output data, considering more cautious language on output in the statement this week. The Bank is also reported to be discussing a possible cut to the assessment of exports.
While a slowdown in economic activity is expected in Q2, the weaker-than-expected reading for industrial production in June with higher inventory is making the Bank less optimistic about economic momentum. The Bank may need to consider lowering the FY2014 economic forecast again at the meeting in October.
As Governor Kuroda remained confident that the economy is continuing to recover moderately in his latest speech, the likelihood of near-term BOJ easing remains small, in our view. Market expectations for October easing may remain for the time being, because of weaker economic data.
We think a small disappointment from the Bank in October is possible. Nonetheless, the divergence between US and Japanese monetary policies should be more prominent, supporting USDJPY in the medium term .