Japan’s inflation outlook

The BoJ revised its target of achieving 2% inflation and extended by another 6 months. Hence, the central bank expects to achieve 2% inflation in second half of FY16. The Bank cut its core CPI forecasts but kept its monetary policy unchanged.

"In the longer run, a risk of BoJ policy and communication error increases especially if the inflation expectations continue to weaken. The yen will face an increasingly bipolar risk of sharp appreciation if the BoJ fails to maintain easing expectations or sharp depreciation if the BoJ is perceived as pursuing fiscal dominance by stepping up its easing efforts more aggressively", said Barclays in a research note.