FXStreet (Delhi) – Research Team at BAML, think the BoJ decision is too close to call as they continue to see better than a 50% likelihood the central bank will stand pat as long as September industrial production data do not reveal extreme deterioration.
Key Quotes
“Based on recent export volumes and industrial production data, we think Jul–Sep real GDP growth is likely to be quite low (around 0%, with any gains likely to be very small). In addition, the crude oil prices continue to move up and down in a narrow range that remains below the level assumed in the BoJ’s CPI forecast. Consequently, we think the BoJ could cut its FY15 real GDP forecast again from the 1.7% announced in July to below 1.5%, and slightly lower its 0.7% forecast for price inflation.”
“Meanwhile, we see a wide divergence in market views on the likelihood of a BoJ decision in favor of additional easing at Friday’s meeting. Indeed, it is difficult to get a good reading on the likelihood of such a decision as August CPI excluding the energy factor indicates a continued improvement with unemployment at its lowest level (3.4%) since August 1997, while uncertainty exists about the length of economic slowdowns in the US, China, and Japan as well as the impact on inflation expectations.”
“We expect the BoJ to adhere to its main scenario, which expects the Chinese economy to gradually stabilize thanks to supportive government policies and the US economy to return to a recovery track from Oct–Dec. In that environment, the BoJ is likely to continue to expect record corporate profits to lead to higher capital investment, higher wages and finally higher consumption.”
“We therefore think it will opt to continue monitoring data for the time being. In addition, the yen’s recent move to slightly above the ¥120/$ mark and the moderate rebound in share prices are likely to inhibit playing of the policy card for the time being.”
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