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BoJ: Additional easing in March or April - BofAML

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 28, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at BofAML, suggests that in light of the recent devlopments, the possibility that the BoJ will loosen monetary policy further in 1H16 has increased in the past month.

    Key Quotes

    “We think three factors in particular are being focused on by the BoJ in monetary policy decisions: (1) conditions overseas and in financial markets (particularly forex); (2) inflation expectations and wage trends; and (3) the capex trend. On capex, we believe the BoJ remains fundamentally optimistic, despite the sharp MoM decline in machinery orders in November, as this can be attributed to a reaction to the sharp growth in September and October, and due to growth in planned capex reported in the December Tankan.

    However, as a result of the rising risk-off mood in the markets amid uncertainty over the Chinese economy and the steep fall in oil, the yen has started to strengthen. The trends in inflation expectations and wages could also pose some concerns for the BoJ.

    In light of the above, the possibility the BoJ will loosen monetary policy further in 1H16 has increased in the past month, in our view. However, as a central bank, the BoJ does need to avoid overreacting to short-term trends in the stock market, and with the current market concerns being mainly due to overseas factors, we believe the BoJ will need more time to assess the policy reaction of the Chinese authorities and US economic data.

    Also, by March it should have various other data on which to assess the trend in salaries, including the outcome of the 2016 spring wage negotiations (most settlements being made by mid-March), the trend in winter bonus payments (December monthly data is for release on 8 February), and January onward wage data free of sample bias (for January due for release on 4 March).

    Given the size of the volatility in financial markets and time-lag before monetary policy works its effects, our main scenario is for additional BoJ easing in March or April, though we cannot entirely rule out additional easing at the upcoming meeting.”
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