Too soon to drop the inflation target

The two-day meeting of the Bank of Japan’s Policy Board, which concludes next Wednesday (22nd), is unlikely to result in any significant changes to the asset purchase programme. We continue to favour October for the timing of any announcement of additional easing (rather than April as many still expect). Instead, the main business next week will be to update economic forecasts and review progress on inflation. There is some speculation that the Board will lower its target from the current 2% or abandon the time horizon of “around two years”, but this seems premature too.