Further BoJ easing expected in October

Deteriorating growth and weakening inflation outlook in Japan increased the pressure for the BoJ to act early. With regards to specific easing measures, the BoJ is expected to 1) increase the annual pace of monetary base expansion to JPY100-110trn from the current JPY80trn, 2) increase JGB purchase to JPY100trn from JPY80trn, 3) extend the average duration of JGB purchases to 9-12y from 7-10y, 4) increase equity-linked ETF purchase to JPY6trn from JPY3trn, and 5) cut IOER by 5bp to 0.05%. 

"We have frontloaded our BoJ easing call to the 30 October 2015 meeting from the April 2016 meeting due to the downward revisions in corporate inflation expectations. While our baseline call is for end-October, we also see a risk of preemptive action as early as at this week's BoJ meeting (Wednesday)", says Barclays.

While uncertainty remains as to what the BoJ actually undertakes when easing further, a decisive action could pose an upside risk to the USDJPY forecast of 123 at the end-2015. Inaction this week may temporarily weigh on USDJPY, but market expectations for an action on October 30 will likely remain live, limiting the downside for the pair. In terms of economic data, August Machinery Orders (Thursday) are expected to register the first increase in three months at +4.8% m/m (consensus: +3.1%). August wages per worker (Monday) is expected to decelerate to +0.8% y/y (consensus: +0.7%) from +0.9% in July.