Both the BoJ and government will regularly assess joint measures at the Ministerial Council on Exiting Deflation. According to the BTMU Research Team, “The BoJ’s decision to implement further monetary policy easing today reflected their view that Japan’s economy has been weakening somewhat with exports and industrial production having decreased.” In the BoJ’s latest Outlook for Economic Activity and Prices Report, the median of the Policy Board members’ forecasts for real GDP for FY’12 was lowered from 2.2% to 1.5% with growth to remain steady at 1.6% in FY’13 before slowing more notably in FY’14 to only 0.6% as the consumption tax hikes are implemented.
As a result of weaker growth the BoJ now sees core inflation pressures remaining more subdued in FY’13 at 0.4%Y/Y compared to 0.7% previously. Excluding the upward impact on prices from the consumption tax hikes, core inflation is projected to pick up to 0.8% in FY’14 which appears within sight of the BoJ’s 1.0% inflation goal. “In these circumstances, we continue to believe there is scope for the yen to rebound in the near-term as BoJ policy actions undertaken today are unlikely to reinforce recent heavy selling yen selling which has left it modestly undervalued.” The team adds.