The Bank of Japan is likely to hold off on expanding stimulus next week despite an expected downgrade in its price forecast that may show Governor Haruhiko Kuroda won't see inflation hit his 2% target before his tenure ends in 2018.
Bank of Japan policymakers signaled on Wednesday they had raised the threshold for further easing after last month's policy revamp—keeping their pledge to expand stimulus if needed, but only to protect the economy from external shocks.
The Federal Reserve with its historic ending of quantitative easing seemed almost hawkish and perhaps a bit oblivious to the impact that the ending of QE might have on the Europe and the rest of the world.
Even after five years of the Fed’s most aggressive accommodative policy in history, there is still a lack of hoped for quality credit creation in the economy, which could be a sign that the greatest deleveraging of the U.S. economy since the Great Depression is still not complete. The Fed’s unrelenting dovish policy appears to support this concern.
In December the Federal Reserve saw enough evidence of economic strength to begin tapering its Quantitative Easing (QE3) program and markets are adjusting to this new reality. So far it has been a tough pill to swallow with emerging markets being the first to feel the pains of withdrawal.
Provided the economy performs as well as Federal Reserve policymakers expect, the Fed will phase out large-scale asset purchases within the next 10 months. That’s a big “if” of course. The Fed has been projecting a stronger recovery each of the last four years, only to see growth average around a tepid 2%.