Additional BoJ Stimulus Unlikely with Inflation on Target; Selective Yen Trading

by on May 1, 2014 12:42 pm BST

Additional stimulus from the Bank of Japan (BoJ) is unlikely as inflation picks up at its fastest pace since 1992. BoJ officials are quite confident that they will achieve their two percent target and will continue to ease at the current pace even as inflation reaches above two percent. The national reading of inflation has held steady at 1.3 percent, while the Tokyo inflation gauge jumped from one percent to 2.7 percent.

As inflation picks up, economists do not forecast additional stimulus until next year in order to keep inflation from spiraling out of control, even as growth slows. “We’re pushing back our forecast for the timing of more stimulus to the first quarter of next year from as early as July,” said Yoshimasa Maruyama, an economist at Itochu.

Nevertheless, Japan is facing economic weakening with Abeconomics falling to the wayside.  Gross domestic product has rapidly declined from 4.3 percent to .7 percent, on an annualized basis, since Abeconomics began to take hold. Wages, and wages in manufacturing, have been on the decline. Recent wage data showed wages are at the lowest levels in over a year, which is putting pressure on consumers dealing with rapidly increasing consumer prices. The manufacturing PMI data has shown a 6.8 point decline in the index since January. There has been a staggering decline in new orders ¥1.074 trillion in January to ¥862.45 billion in February.

BoJ Governor Haruhiko Kuroda does not seem to be worried about consumer spending decreasing ahead of the three percent hike in sales tax last month. The tax was implemented to help, meagerly, the massive debt burden Japan has held for years. In 2008, Japan’s debt-to-GDP ratio was 167 percent. It has now swelled to 227.2 percent.

The earliest expectation for hints of additional stimulus will be at July’s BoJ meeting. In central bank fashion, the BoJ’s outlook is beginning to turn vague. Previously, Kuroda believed the inflation target would be hit in 2014 through 2015; but, national inflation has been snagged on 1.3 percent for four consecutive months. Now, the BoJ Governor forecasts the two percent inflation will be reached in 2015.

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