From a research note courtesy of Societe Generale strategy group late last week.

  • Expect more from BoJ, much is riding on the BoJ this month
  • SG economics expect s an intensification of the BOJ’s Quantitative and Qualitative Monetary Easing (QQE) policies this quarter, most likely to be announced at the 30 April meeting
  • We expect the annual monetary base expansion to rise from ¥ 60 – 70 trillion to ¥ 65 – 75 trillion , and the timeline for the QQE program to be extended for another year to FY2016
  • core CPI inflation is lagging significantly – much of the recent inflationary impulse in Japan has come from higher food and energy prices (some via the falling yen). Thus, more needs to be done (by the BOJ)
  • Progress on structural reforms (the ‘third arrow’) remains painfully slow
  • recent deceleration of the Japanese economy is making it more difficult to maintain the upward inflationary trend from the demand-side
  • Monetary policy thus remains the chief lever of Abenomics

“In short, the Kuroda – led BoJ needs to expand the QQE program if it is serious about achieving 2% inflation…

That means a higher USD/JPY over the next 6 – 12 months . Given the zero lower bound in nominal interest rates, the policy tool has defaulted to the exchange rate… We expect 108 by end – 2014″