Bank of Japan could be about to spring a surprise

While Governor Kuroda provided no indications that additional easing was imminent at the first meeting earlier this month, he has a record of springing surprises. In the meantime, the economic recovery is anaemic and underlying inflation has remained weak. Indeed, headline inflation is set to plummet in April (as last year's consumption tax hike drops out of the annual comparison) and it could even turn negative soon, dragging inflation expectations lower again.

"We stick to our view that policymakers will signal their commitment to the 2% inflation target by announcing more stimulus this month. We have pencilled in an increase in the annual pace of JGB purchases from ¥80trn to ¥85trn and of equity ETFs from ¥3trn to ¥8trn." - said Capital Economics in a report

What's more, even if the BoJ does maintain its current policy settings today, the persistent threat of deflation, sluggish growth, and the dire state of the public finances should maintain the bias towards further easing for the foreseeable future. 

"We continue to forecast renewed yen weakness and outperformance by Japanese equities." adds Capital Economics