The Bank of Japan meets later this week. We do not think that it will expand its already aggressive monetary policy stance. Given the largely operational adjustments announced last month, it seems premature to expect substantive adjustment now. It is true that the recent string of data has been mostly disappointing, and the yen has strengthened on a trade-weighted basis over the past month. 

Our takeaway from talking to Japanese officials is that they are not exceptionally concerned. The economy may have contracted slightly in Q4, but trend growth is so low (~0.5%) than a slightly negative print does not mean what it would if an economy like the US with around 2% trend growth would have a negative quarter or two. Consumer prices, excluding fresh food and energy, rose 0.9% in November, which matches the high since the effect of the 2014 sales tax increase dropped out of the comparison.  

Moreover, some officials note that rents in Japan are falling, and this is more of a structural issue than one subject to monetary policy. If rents were excluded, this would push the “core” CPI a bit higher still. Like other central banks, the BOJ is unlikely to want to be seen reacting to the current volatility in the markets, which few see as reflecting a significant change in fundamental considerations. 

In an interview at the end of last week, BOJ Kuroda suggested that market turbulence has not adversely impact corporate behavior. The yen is well off the highs seen in the middle of last week. Kuroda did not rule out further easing. He simply indicated that the central bank was in a “wait and see” mode while its current program of increasing the balance sheet by JPU80 trillion a year continues. 

Of course, many participants recall the surprise move in 2014, which followed relatively optimistic remarks by Kuroda a few days previously. Once burnt, twice shy.