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JPY: Easing not in sight at least for now - Rabobank

FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, notes that the BoJ Governor Kuroda does not sound like a man desperate to ease policy further and at the sidelines of the weekend’s IMF meetings, Kuroda commented that “if necessary, we can further ease our monetary policy but at this moment the inflation dynamics is as we anticipated. So, at this stage we just continue QE, but if necessary we can adjust”.

Key Quotes

“The door for further easing has clearly been left open, but there is a tangible reluctance to act despite clear market pressure to do so.”

“Recent economic data releases have shown weakness in production, trade, retail sales, vehicle sales, machine orders and inflation data. At the October 30policy meeting, the BoJ is expected to revise lower forecasts for both activity and inflation and many market participants expect the Bank to sooth these announcements with an increase in QE.”

“An increase in the asset purchase programme, however, may not be straightforward. The minutes of the August BoJ policy meeting state that “one member said that the additional effects of QQE had been diminishing and such effects from even the initial scale of QQE had already been exceeded by the side effects.”

“Even amongst those who believe that the BoJ has no choice but to extend QQE, there are fears that the size of the programme has become so unwieldy as to necessitate some change in tack.”

“Also arguing in favour of steady policy on Oct 30 is the BoJ observation that the “real effective exchange rate of the yen has depreciated to the level last recorded in 1973”. Why we expect that the BoJ will have to ease further this cycle, there is clear risk that October may bring a disappointment for JPY bears.”

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