Will the BoJ signal more expansionary measures?

Tonight's BoJ meeting promises to be an interesting affair. Consensus expectations are that the BoJ will continue with the current pace of QQE expansion (¥80 trn). However, looking at the recent behaviour of USD-JPY and USD-JPY volatilities / risk reversals one has the impression that the market seems to think further easing is imminent. 

CPI data are still a long way off the 2% target, meaning that some form of easing or policy expansion is inevitable in the coming months. A simple expansion of the current programme is unlikely to be successful. 

If buying 16% of GDP worth of JGB's does not lead to a pickup in CPI data, why should a further increase? As such it is not necessarily what the BoJ does tonight but rather what they indicate in terms of potential further easing measures, such as the implementation of negative interest rates. 

Timing is always important for central bank decisions and from the BoJ's point of view the timing could not be better. The rebound in the USD means the BoJ may well get more bang for their buck by indicating a future expansion of policy at tonight's meeting. The bottom line is that can be expected further upside in USD-JPY in the coming trading sessions, says Commerzbank.