BoJ's monetary base likely to increase further

The Bank of Japan (BoJ) refrained from easing monetary policy further today. The decision was taken by an 8-1 majority, even though the bank has slashed its inflation forecast by a large margin in its semi-annual outlook. 

"The bank left its open-ended Quantitative and Qualitative Easing (QQE) programme unchanged so the monetary base will continue increasing by JPY 80tn. The total stock is expected to increase to 85% of GDP at the end of 2016 from around 70% currently, making the BoJ the most aggressive central bank in the world", states Nordea Bank. 

The market had expected a close call with 44% of surveyed analysts expecting more easing. The split view was due to valid arguments on both sides. The arguments favouring more QQE include disappointing inflation and growth outlook. The economy faces growth challenges both domestically and externally. Inflation is far from the 2% target. 

"The primary counterargument was that more easing would likely be followed by a weaker yen, which in turn would make imports more expensive for companies and households and risk to undermine demand further", added Nordea Bank.


Despite no action today, we expect the BoJ to continue facing pressure to ease in the near term, especially when the ECB and PBoC have launched more easing lately. The BoJ will meet again on 18-19 November and 17-18 December.