Chart of the Week: More QQE is a Question of When, Not if for the Bank of Japan

Last week, Minutes of the Bank of Japan’s 30 October meeting were published; ahead of that meeting, many analysts had expected the Bank of Japan’s Policy Board to expand the size of its asset purchase program. However, it held fire, and did so again at another meeting earlier this month

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According to the Minutes, Committee members felt that “a virtuous cycle from income to spending continued to operate steadily in both the household and corporate sectors.” That optimism, as well as a pick-up in underlying inflation, look to be behind the Bank’s decision to hold fire.

Indeed, although the Bank targets consumer price inflation excluding fresh food of 2.0%, its preferred measure is consumer price inflation excluding both fresh food and energy. When we first highlighted that to our clients, the data were not publically available.

Since then, the Bank of Japan has begun publishing the data, confirming our estimate that underlying inflation is in excess of 1%. As the chart demonstrates, October’s official reading of 1.2% is the highest on record, and well above core inflation of -0.1%.

Despite this, we believe that a combination of anaemic growth at home and policy loosening elsewhere will force the Bank of Japan’s hand. More QQE is a question of when, not if for the Bank of Japan.