No signs of inflation but BoJ does not expand QE

There will be major problems because central banks world-wide are interfering in areas which they had better stay away from, as they cannot really influence developments. Nevertheless, the BoJ's decision of last night is somewhat astonishing. 

Contrary to what about half of the surveyed analysts had expected, it did not adjust its monetary policy course and did not expand its asset purchases. The BoJ will continue to buy assets worth roughly 16% of GDP each year. The JPY initially benefited, as the FX markets regard QE as damaging for a currency. However, the recovery was short-lived. 

This was probably due to the fact that almost nobody in the market believes Japanese likely inflation to accelerate towards 2% in the near future, as forecasted by the BoJ. After all, consumer price data were released as well today. 

Once again, prices have hardly moved. Underlying price trends when seen, which had been adjusted for the VAT hike in the chart. At the moment, underlying (annual) inflation for the Tokyo area is slightly negative (-0.08%). 

And the figures for the country as a whole (only available up to September) are not much better (+0.09%). The BoJ is continually trying to spread optimism about inflation, but it appears to be closing its eyes to reality. 

"With wages not adding to inflation pressures either, BoJ Governor Haruhiko Kuroda is still far away from reaching the inflation target. The BoJ has at least postponed the date at which it plans to reach the 2% target. It is now talking of end-2016. It will miss this target, too", says Commerzbank.