Yujiro Goto, Global FX Strategist at Nomura, sees further easing by the BOJ in March as a high possibility event, in line with recent comments from Prime Minister Abe’s economic advisor, Mr Honda, who said on Wednesday, that the BOJ should act pre-emptively to change the deflationary mindset in Japan. Key Quotes "After the recent JPY appreciation and equity market decline, it is getting more difficult for the BOJ to achieve its price target. The BOJ is likely to need to lower its economic and inflation forecast again at its April meeting, although the Bank lowered its inflation forecast in January." "The Toyota labour union is reported to have officially asked for a base salary increase of only JPY3000 per month, much more conservative than the JPY6000 per month raise it asked for last year (Bloomberg)." "We judge one of reasons behind the BOJ’s additional easing was to encourage greater wage increases. BOJ Deputy Governor Nakaso said last Friday that the BOJ is carefully monitoring wage increase negotiations, and labour unions’ conservative pay demands, even after the BOJ easing, are likely to disappoint the BOJ." "Major companies are expected to report their wage hike decisions for FY2016 on 16 March, the day after the next BOJ meeting (14-15 March), but the unions’ conservative requests suggest wage negotiations are unlikely to surprise the Bank positively. Thus, we think the BOJ may decide to ease even before the results of the wage negotiations are clear." "Recent weak economic data and market turmoil have been clearly increasing the likelihood of policy responses from the Japanese authorities, potentially including a further delay of the consumption tax hike." "In the medium term, Abenomics may pick up momentum again into the election, limiting downside risks for USD/JPY. In the short term, however, we still do not expect the government to intervene in the FX market, while we do think BOJ action is likely at the next scheduled meeting in March." "USD/JPY should be influenced more by external factors for the time being, and key US data during the first week of March and the G20 meeting later this month will be the near-term focus for JPY." For more information, read our latest forex news.