BoJ could wipe out bets on July easing
Investors betting the Bank of Japan will ease monetary policy next week could be riding for a fall, as the yen's recent weakening and a government spending package take some pressure off the bank to step up its massive stimulus programme.
Market speculation of further easing spiked last week after visiting former Federal Reserve Chairman Ben Bernanke told Prime Minister Shinzo Abe that there were still "various tools available" for monetary policy to spur growth.
A poll showed 85 percent of analysts expect the BOJ to ease on July 29, alongside the fiscal spending boost Abe is set to announce this month. The BoJ has already implemented negative interest rates and is printing 80 trillion yen ($750 billion) a year to stimulate inflation after decades of deflation and stagnant growth, yet inflationary expectations appear to be weakening.
Sources familiar with the BoJ say it will downgrade its assessment that underlying trend inflation is "improving steadily" next week.
But there is no consensus within the bank on whether that warrants prompt action. While officials do not rule out more stimulus in July, some say a delay in hitting the bank's inflation target alone shouldn't trigger immediate easing as a tightening job market will eventually push up wages and feed into prices.
"It's true underlying trend inflation lacks momentum. But what's important is for there to be signs that inflation expectations will heighten in the future," said one of the sources. MARKET BACKLASH The BOJ has stood pat since it adopted negative interest rates in January, with Governor Haruhiko Kuroda blaming weak inflation on temporary factors like oil price falls.