Bank of Japan still likely to ease more

The BoJ’s decision today to keep its policy settings unchanged was no surprise, particularly in the wake of the government’s announcement that it would introduce a large fiscal stimulus to offset the impact of next year’s consumption tax hike. Nonetheless, we continue to think that an expansion of the asset purchase program will be required as the recovery disappoints in the months ahead and the inflationary effects of the weak yen start to fade. Most likely this will be announced in the first quarter of next year, when concerns about the impact of the sales tax hike will be mounting.