JPY Outlook

JPY will likely remain exposed to fluctuations in global risk sentiment in the short term, the focus will be on the potential for a policy reaction to slowing domestic and external growth. Japan's growth disappointed recently, and the slowdown in China poses downside risk. 

"With rising uncertainties in the global economy and a delay in Fed tightening, we have revised down our end-2015 USDJPY forecast to 123 and expect the pair to be range-bound thereafter", notes Barclays.

Expectations for further easing are rising gradually, likely due to the striking similarities to last fall when the BoJ surprised the markets with additional easing following poor growth, decelerating inflation and a decline in oil prices. However, it is believed that further BoJ easing is unlikely in the near term and only expect additional easing next April when the Bank faces its self-imposed deadline for 2% inflation and next year's Shunto results become clearer. For now, the BoJ is likely to remain constructive on the growth and inflation outlooks, waiting for global headwinds to subside. It is believed that fiscal stimulus is more likely to be deployed to avoid a drag if needed.