BoJ Under Pressure as Oil Price Reduces Energy’s Inflation Boost

Bank of Japan policymakers gathering for a rate review this week will face the daunting task of coming up with a reason why they can hold off on expanding stimulus for now, even as slumping oil prices keep inflation further away from their 2 percent target.

Less than three months ago, the BOJ justified its shock expansion of “quantitative and qualitative easing” (QQE) as aimed at preventing oil price falls, and a subsequent slowdown in price rises, from weighing on inflation expectations.

The move kept alive market speculation that the relentless drop in oil prices, which have nearly halved since October, will force the BOJ to ease again in coming months.

 
At the two-day rate review ending on Wednesday, the BOJ is set to cut its core consumer inflation for next fiscal year below 1.5 percent from 1.7 percent projected in October, sources familiar with the bank’s thinking said.

With the BOJ’s massive purchases already pushing yields into negative territory, many board members want to hold off on expanding QQE for now.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza