Can the BoJ afford inaction at Thursday's meet?

The Bank of Japan will decide on its monetary policy on Thursday and if the BoJ does not take action on Thursday or does not announce far-reaching easing measures to be implemented very soon, the nice currency effect achieved till now would be wasted.

Yen has seen an impressive depreciation and last Friday USD-JPY finally managed to breach the 110-mark. Rumours about the possible introduction of a negative lending rate were sufficient to cause the yen to depreciate to a similar extent as it did after the surprise introduction of the negative deposit rate in late January.

The BoJ finally has to prove to the FX market that it is still in control and it will only be able to do that if it manages to keep the USD-JPY exchange rate at higher levels over a prolonged period. It would not be the first time that the BoJ completely ignores all market environments and macro-economic data and sticks to its positive outlook that is based on inflation finally actually rising to 2%. But it would be complete madness to do nothing at all.

"If it does not want to be completely at the mercy of the financial markets it will have to deliver. And it will have to deliver in such a decisive manner that the measures will also have an effect on the FX market." notes Commerzbank in a report.