Inflation Putting Pressure on BOJ, Abe Awaiting on Corporate Japan to Spend

The BOJ is expected by market analysts to increase its economic stimulus as inflation continues to disappoint. Market surveys point to a third of economists forecasting a further easing call in October. There are a couple of respondents that call for action as early as Tuesday, but so far they are in the minority.

Liberal Democratic Party lawmaker Kozo Yamamoto was vocal on Thursday saying the BOJ must increase its easing program by at least $85 billion, with the October policy meeting a good opportunity.

The JPY has weakened versus the USD as Japanese inflation fails to take off as promised by Prime Minister Shinzo Abe. The BOJ Governor Haruhiko Kuroda was recruited into the central bank after he supported the feasibility of a 2 percent inflation rate for the Japanese economy. External shocks like the drop in commodity prices, in particular energy has been a boon to local producers, but has been a major obstacle for the inflation target.

Kuroda has not been forthcoming about the timing on further monetary policy easing, but he has taken the 0.1 percent money market rate floor off the table. The last time the Japanese central bank expanded its stimulus package was back in October of 2014 on Halloween day, in a move that spooked markets.

Business confidence in Japan has risen, but capital expenditure has not risen on par with optimism. Japanese companies plan to spend 6.1 percent more this year, an improvement of an earlier 5.9 gain. Wage inflation and higher investment from companies are needed if Shinzo Abe hopes to reach his lofty goal of 2 percent inflation for Japan.

Bank of Japan events to watch this week:

Monday, September 14
Tentative JPY Monetary Policy Statement
Tuesday, September 15
Tentative JPY BOJ Press Conference
Thursday, September 17
2:35am JPY BOJ Gov Kuroda Speaks

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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 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