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JPY: Easing expectations from BOJ to withstand – Nomura

FXStreet (Delhi) - Yujiro Goto, Research Analyst at Nomura, suggests that market expectations for BOJ easing are likely to stay relatively high, beyond the meeting next week after the mixed inflation data of the last week.

Key Quotes

“On average, consumers expect price levels to be 4.7% higher in one year, slightly decelerating from the previous survey (4.8%). In the longer term (five years), they expect prices to increase by 3.9% per year, unchanged from the previous survey. Even though household inflation expectations based on the Cabinet Office survey have slowed recently, the survey by the BOJ showed resilience in inflation expectations among households.”

“In contrast, the inflation outlook of enterprises based on the BOJ Tankan survey showed a broad decline in inflation expectations among businesses, from short-to long-term. BOJ Governor Kuroda has been displaying an optimistic view on the inflation outlook, partly because inflation expectations are resilient and companies' price setting behaviour is changing. Inflation expectations based on the BOJ Tankan survey cast doubts on this optimistic view.”

“Nonetheless, as economic data since the previous meeting have been disappointing, Governor Kuroda's stance may not be hawkish enough to eliminate market expectations of easing into the 30 October meeting. Downside risks of USD/JPY will be limited by BOJ easing expectations. Although easing next week is not our base case, we recommend keeping a small long bias for USD/JPY, as downside risk is likely limited.”

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