The Bank of Japan (BOJ) will hold its first policy board meeting with the newly appointed board members on April 26 and 27. In our view, there is a growing probability of the “dovish” faction gaining momentum, with at least two (and possibly three) of the nine board members voting for added monetary stimulus. The reason for this is not just the changing composition of the board—Masazumi Wakatabe, the newly appointed deputy governor, is a longstanding super-monetarist who believes there are basically neither limits nor costs to what a central bank can do; more importantly, incumbent board members won’t be able to deny the rising visibility of down-cycle risks in Japan’s economy. In short: the weaker Japan data gets in coming weeks, the more markets will be rewarded for anticipating the next pro-growth positive “Kuroda surprise.”

Already, key leading indicators have begun to roll over:

Of course, housing and bank credit are closely correlated—as much as two-thirds of Japan’s new domestic credit demand stems from mortgages and durable goods-related consumer finance. Together these two indicators offer the best insight into the cyclical dynamics of the single most important force of domestic demand, Japanese households. Unless the February and March data reveals a decisive positive inflection out of the current downturn, policy makers should be worried about more fundamental downside risks building momentum.

We stress housing as the key leading indicator because residential investment has been a definite beneficiary of “Kurodanomics,” the most concrete link from the BOJ’s actions to the real economy. Specifically, the “Kuroda bazooka” of October 2014 (when the ¥80 trillion balance-sheet growth target was announced) certainly kick-started the late-2014/2015 housing boom, and the introduction of “negative rates” in late-January 2016 triggered the sharp upturn in housing for the rest of the year (see figure 1).