BoJ to ease again in April at the earliest

Lower global oil prices have put downward pressure on domestic prices, making it difficult for the central bank to meet its 2% inflation target even by end-2016, more than three years after it launched its current monetary easing cycle. 

Core inflation plunged sharply to 0.2% y/y in January from 1.0% y/y in September 2014 (excluding the sales-tax effect), and we expect it to slow further to below 0% in the coming months. 

Domestic pressure is also building, bringing into question the effectivenessof further monetary easing and the need for further Japanese yen (JPY) weakness.

Standard Chartered notes its views in a report on Monday as follows:

• We think pre-empting a possible return to broad-based deflation is a priority for the BoJ, and expect further easing on 30 April at the earliest, otherwise in July or October. 
  
  
• We await wage negotiations in spring and results of the BoJ's Q1 Tankansurvey (including results of the inflation expectations survey). We think a near-term downward shift in inflation expectations will justify another round of monetary easing.
  
  
• We expect the BoJ to increase its asset-purchase programme to JPY 90tn from JPY 80tn currently, as highlighted in Economic Alert, 2 February 2015, 'Japan - More QQE is likely in 2015'.
  
  
• We also think it may consider extending the deadline for meeting its inflation target. However, we maintain our long-standing view that structural reform will be a longterm means by which Japan can achieve sustainable growth.