FXStreet (Barcelona) - Rob Carnell, Chief Economist at ING, comments that the inflation story for Japan is still off target, but the BoJ might keep its policy unchanged for now.

Key Quotes

“...the news on deflation is not great. Underlying core inflation has touched zero, adjusted for the consumption tax hike. And though there is certainly an energy element to this weakness, it is clear that Japan remains way off its 2.0% inflation target, and is headed the wrong way.”

“The BoJ does not seem unduly worried for now. Recent minutes from MPC policy meetings showed a majority still expect the 2.0% inflation target to be reached, probably by early next year, though this was clearly contingent on energy price developments.”

“Moreover, there was even a proposal to make QQE less open-ended, given that the benefits in terms economic stimulus were perhaps minor and may be outweighed by the costs of financial market distortions, though the motion by one member to review the benefits of the programme in two years was defeated.”

“On the opposite tack, we doubt there will be any expansion to the QQE programme any time soon, irrespective of the turnout in the data.”

“Other newsflow, including the latest Tankan survey continue to paint a very mixed picture, with headline manufacturing indices flat to down, and forward-looking indicators downbeat. The non-manufacturing sector was shown by the Tankan as doing better.”

“But the overall impression is of an economy that is only just managing to make headway, despite the very favourable tailwinds of monetary policy and the currency, and the prospect of stepping up a gear remains a very optimistic one. Official resignation to this mediocre future seems as likely at this stage as a redoubling of efforts to escape it.”