Japan: More easing on the cards – ING

By FXStreet James Smith, Economist at ING, suggests that the Bank of Japan caught markets off guard and introduced negative interest rates, although the overriding message was that this is likely to be just the first of potentially many rate cuts to come.

Key Quotes

“Perhaps the biggest lesson of all of this is that the BoJ is more sensitive to JPY strength than had been earlier thought. Heading into the meeting, the yen was stronger on a trade-weighted basis than it was before the October 2014 meeting. Going forward, currency movements are likely to be a key gauge of whether we can expect further cuts. In March, this is likely to heavily depend on what the ECB delivers and, given that further stimulus is widely expected, there is a high chance the BoJ will follow with a 10bp cut.

The case for near-term action is likely to be boosted by a further drop in consumer inflation expectations (an important factor in the BoJ’s reaction function), which are driven primarily by expected changes in food prices rather than oil. With the effect of a significant yen depreciation in 2014 filtering out of the numbers, food inflation is set to fall fairly noticeably over the next …read more

Source:: FX Street