ING analysts don’t think the BoJ wants to fall behind and risk further economic weakness as the continued safe-haven appreciation of the currency (JPY) dampen exports and GDP growth ahead.

Key Quotes

“Japan’s growth has been anaemic and inflation is nowhere close to the BoJ’s 2% target, nor is likely to get there in the distant future. Making matters worse will be the consumption tax hike looming next month. The hike may add a few points to inflation but history is a guide to how disruptive these tax hikes have been for the economy.”

“Taking rates deeper into the negative territory remains an option, as Governor Kuroda pointed out earlier this month, though the adverse impact on consumer sentiment through more negative returns on saving remains a policy dilemma. The recent sell-off in JGBs (less negative yields with the 10-year up from -0.28% in late August to -0.21% currently) and weaker JPY should be a relief for the BoJ but again that’s a reflection of what’s happened to the US Treasury yield, while the thawing US-China trade relations sapped the safe-haven demand for the JPY.”

“Even so, a rate cut shouldn’t come as a complete surprise for the markets. What good that does to the economy will remain a question absent any effective policy tools to address the perennial problem of sub-target inflation (or is it the target that's rather unrealistic?).”

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