BoJ to expand QQE on low inflation

The BoJ is expected to expand the monetary easing programme tomorrow as half of the market analysts do. Disappointing inflation and GDP growth are the main reasons. Without more monetary easing, the Abenomics will likely appear as a failure and put the plan of reviving Japanese economy at risk.

"We maintain our long-held view that the Bank of Japan will likely expand its Quantitative and Qualitative Easing (QQE) programme at its meeting tomorrow, when the bank's semi-annual economic outlook will be released. We expect the monetary base to increase by JPY 90tn a month from the current pace of JPY 80tn. Total stock of monetary base will then increase to close to 90% of GDP at the end of 2016. The market view is split. 16 of 36 analysts surveyed by Bloomberg expect the same as us", says Nordea Bank.

Analysts' expectation is mainly based on the argument that the BoJ has so far been over-optimistic on the inflation outlook. Although it is seen the inflation to pick up in the coming months, due to disappearing base effect, it will not likely reach 2% in the coming two years, forecasts Nordea Bank. The market has generally been sceptical on the BoJ's inflation target as well. Governor Kuroda has repeatedly assured that he will not hesitate to act if inflation target is jeopardised.