October meeting might disappoint markets

The upcoming BoJ meeting is unlikely to result in any changes in policy. However, policymakers will have to outline their strategy for 2015 before too long – most likely at the late-October meeting, we think. Inflation has been stronger than previously expected, so policymakers are more likely to announce an extension of QQE in its current form rather than an expansion in the pace of purchases. But we think that inflation will start to fall short of the BoJ’s optimistic forecasts by the end of the year. Accordingly, a more aggressive version of QQE may be revealed sometime in 2015, perhaps at the April meeting.