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According to analysts at ING, the pressure is on for the Bank of Japan to provide more policy accommodation for the economy at its meeting next week on 31 October.

Key Quotes

“The BoJ’s policy decision hinges on its view of the economic risks against a worsening global backdrop.”

“The word on the street is that the central bank would downgrade both growth and inflation forecast, currently 0.7% and 1.0% (core inflation), in the quarterly outlook report to be released alongside the policy decision. However, such downgrades in the past haven’t necessarily come as a push for easing. That could as well be the case this time, as speculation is rife that the BoJ is saving its meagre ammunition for a worse economic future.”

“How worse would you like it to be? The consumption tax hike this month comes as an added whammy to the economy beaten by weak domestic demand and shrinking exports, while the tax hike is unlikely to make much difference to inflation running way below the BoJ’s policy target. Governor Kuroda has signalled that the stimulus is coming. We anticipate a 10bp BoJ rate cut to -0.20% in the current quarter as there is one more BoJ meeting left in the year.”