No policy change expected from BoJ's meeting

The Bank of Japan's (BoJ) two-day monetary policy meeting to be held on 18-19 June, no policy change is expected at this meeting, therefore, the annual increase in asset purchases is likely to remain at JPY 80tn.

The BoJ is likely to ease again in October, as the current easing measures are not enough to achieve the 2% inflation target in H1-FY16 (starting April2016), said Standard Chartered in a report on Thursday. Monetary easing would be the BoJ's next target rather than tapering. While some participants in Japanese Government Bonds (JGBs) have complained about JGB market volatility following substantial purchases by the central bank, Kuroda does not seem particularly concerned about it, notes Standard Chartered. 

The BoJ has also strengthened communication with the market about the JGB purchase schedule. Kuroda's press conference after the 19 June meeting may draw more market attention. His 10 June comment about the JPY real effective exchange rate (REER) being very weak and unlikely to fall further led to significant market volatility. Some market observers have interpreted this as a signal that the government and the BoJ have likely changed their views on the Japanese yen (JPY) given its rapid depreciation in recent weeks. Standard Chartered argues, they both still prefer a weak currency. 

Japanese exporters' and large manufacturers' operational profits are clearly improving due to a weaker JPY, as are profits of SMEs with direct investments overseas. Under 'Abenomics', one way to reflate an economy is by raising companies' profits via a weaker currency. Rising profits are also a precondition for raising wages, key to reviving private consumption.