Japan sliding into recession mode, 2% inflation target still a major concern for BoJ

The GDP data (-0.2%) for Q3 illustrated that Japan is in recession.

However, while the inflation rate remains at '0' because of which the BoJ cannot breathe a sigh of relief.

Unchanged unemployment claims were stubborn at 3.4% from previous.

If the economy is now also flagging the small flicker of hope that its inflation target of 2% could be reached by March 2017 is dwindling even further.

A tiny little positive signal on the inflation front is the GDP deflator that rose to 2.0% yoy.  Even if it leaves everything unchanged at the moment, the BoJ will have to stand to attention.

The last meeting provided the perfect reason for this step as the BoJ corrected its growth and inflation outlook downwards.

As a result hardly any market participants expected the BoJ to take action today and it fulfilled this expectation.

In the end it can still wait and see and watch developments in USD/JPY once the Fed starts the normalization of its monetary policy.

However, it has become clear since Monday at the very latest that the BoJ will have no choice but to become more expansionary again.