Quantitative Easing is already big in Japan. The original QQE program from April 2013 shocked markets and so did the second one in October 2014, also thanks to the Japanese government.
Tension is growing towards the October 30th decision with many analysts contemplating QE3 in Japan. Yet this might not come so fast.
This is when the central bank will already have its semi-annual outlook as well as indications if the country is in recession. The decision is critical for the next direction of USD/JPY, that clings to 120 in the meantime.
Apart from a potential recession, the BOJ focuses on inflation. According to most measures, core inflation is stuck under 1%. However, a new indicator already looks different.
The UTokyo daily price index shows a y/y gain of 1.4% which is quite significant. The daily read is available thanks to monitoring online data. and not only is inflation at a healthy rate, but Tsutomu Watanabe also points out to a trend of growth. This is also eyed by the BOJ.
Another hint regarding the BOJ comes from the government. Finance minister Aso said he doesn’t expect BOJ action to come anytime soon. That isn’t only outside commentary: the BOJ is certainly influenced by the government.
If the BOJ sits on its hands once again on October 30th, the yen could strengthen quite nicely, with 115 eyed. In case of more yen printing, we could see 125 soon.
The BOJ has lots of considerations: one of them is the Fed decision two days beforehand and the other one is the Trans-Pacific Partnership.
In the meantime, there seems to be little appetite for even more QE. We’ll soon know.
More: On TPP, BOJ and the Japanese yen