Cuts to inflation forecast to underline need for loose policy

With economic growth strengthening recently, a slim majority of analysts now expects the Bank of Japan to start tightening policy by the end of next year. But stronger growth has failed to generate price pressures – in fact, the Bank looks set to revise down its inflation forecast for this year at the upcoming meeting. And with outspoken hawks soon to leave the Policy Board, we remain comfortable in our view that the Bank will leave its policy rate as well as its 10-year yield target unchanged for the foreseeable future.