"The Fed's decision not to taper implies that it's extremely difficult to envision the BOJ's 2 percent target being achieved in two years"
-Akio Kato, the team leader of Japanese debt in Tokyo at Kokusai Asset Management Co.
Earlier this week during the Kisaragi-kai meeting Bank of Japan Governor backed widely-discussed aggressive easy policy saying the world's third largest economy is moving towards the path of reaching the 2% price stability target. However, there are now fewer and fewer analysts, who expect it to happen within the planned period. Moreover, the recent FOMC meeting and a surprise decision to refrain from tapering of its stimulus programme is raising concerns BoJ's Governor Kuroda is facing an uphill battle to stoke inflation with QE. The nation's implied forward yield, which reflects bond investor expectations of the two-year note rate in 2015, has reached 0.24%, its lowest since April 4, when BoJ introduced its unprecedented stimulus. This figure suggests market participant do not expected inflation pressure to boost yields for at least next two years. And even though Japanese core CPI advanced to 0.7% in July- the fastest rate since 2008, markets are signalling inflation of just 1.36% over the next five years- significantly lower from the BoJ's 2% target by 2015 already.
In the meantime, a report from Japan Chain Store Association showed the nation's largest supermarket chain stores experienced stronger sales in August, as Abenomics are boosting domestic consumption. August sales inched higher 0.1% annually, following a 0.5% drop in July. Meanwhile, sales of good, that represents around 65%, advanced 0.6% from a year earlier.
© Dukascopy Bank SA