Derek Halpenny, European Head of GMR at MUFG, suggests that they are certainly not surprised with greater market talk of additional BOJ easing, perhaps as soon as the next meeting on 28th April. Key Quotes “It’s hard to argue against that really and it is inevitable that the updated forecasts by the BOJ will point to both weaker growth and lower inflation. Former BOJ Deputy Governor Iwata stated today that the BOJ might run up against limits on JGB purchases by the middle of next year and hence its key policy tool will not be QQE but taking rates deeper into negative territory. He goes on to cite -0.7% or perhaps even -1.0% as being “appropriate”. Certainly it makes sense to assume further cuts will be part of any package of additional easing measures. To refrain from cuts would be a signal to the markets that the BOJ doesn’t envisage rate cuts as a policy tool and that would be a dangerous signal given where central bank policy rates are in other countries. We certainly remain very sceptical of intervention being a viable option any time soon, and that view was of course reinforced by PM Abe’s comment that Japan must “refrain from arbitrary currency intervention”. It is worth remembering that there really is no urgency at current levels. When viewed in BOJ nominal trade-weighted terms, the yen closed at 99.11 yesterday and has more than unwound the depreciation fuelled by the 2nd round of BOJ QQE in October 2014. But relative to the most recent high before Abenomics was launched in 2012, the yen remains 25% weaker. What PM Abe and the BOJ will be hoping for is continued evidence that China growth is stabilising along with evidence of crude oil price stability. A continuation of both would be far more powerful in lifting USD/JPY than “arbitrary intervention”.” For more information, read our latest forex news.