The recent data flow from Japan on balance has been encouraging. Reports indicate that business expansion has strengthened and broadened, spanning from the labor market to capex. This week's BoJ Tankan reinforced this message, registering a solid reading on current business conditions, along with a rise in capex plans and the profit outlook as well as a further tightening in labor market conditions. 

This week we also received a positive surprise on net exports, which are poised to contribute substantially to growth this quarter. The main disappointment has been consumer spending, which contracted in September and October. Household spending should rebound as it is well supported by real income and wealth gains. 

The BoJ continues to express confidence in the outlook, and it came as a surprise when officials this week announced changes in the QQE program, including an extension of the maturity of JGB purchases, an increase in ETF purchases, and an increase in the limit on J-REITs purchases. The size of these changes is modest and Kuroda deemed them "technical" in nature. The BoJ meant to signal that it still has tools for additional easing. The BoJ is expected to ease policy further, but will likely hold off acting until after the Upper House elections next July.