Is more BOJ easing on the way?

A general view of headquarters of the Bank of Japan in Tokyo, Japan.
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A general view of headquarters of the Bank of Japan in Tokyo, Japan.

The reported appointment of well-known monetary reflationist Yasushi Harada to the Bank of Japan (BOJ) board has ignited fresh speculation of more easing from the central bank.

"This looks like a piece of good news for those expecting additional easing actions by the BOJ," said Credit Suisse economist Hiromichi Shirakawa in a note. Harada is a "well known as a monetary reflationist;" if he joins the nine-member BOJ board, "Governor Haruhiko Kuroda is likely to be able to continue to secure at least five votes for an easing action."

Prime Minister Shinzo Abe's government will nominate Harada, a Waseda University economist, to replace fellow dove Ryuzo Miyao, who will step down when his term ends on March 25, the Nikkei reported without citing sources.

"The news is a signal from the government that there is continuity on monetary policy," said Mizuho Securities' Chief Market Economist Yasunari Ueno.

Miyao was one the five board members who supported last October's decision to expand asset purchases to 80 trillion yen ($679 billion). The move surprised markets, sparking a stock market rally and sending the yen lower against the U.S. dollar.

Read MoreBOJ keeps policy unchanged, cuts CPI forecasts

Inflation slips

The central bank's 2 percent inflation target remains elusive; in December, consumer inflation slowed for a fifth straight month to 0.5 percent, excluding the effects of last April's consumption tax hike.

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In January, the BOJ cut its core consumer inflation forecast for fiscal 2015 to 1 percent from 1.7 percent, citing the collapse in oil prices. At the same time, the central bank raised its real GDP growth forecast for the next financial year to 2.1 percent from 1.5 percent.

The forecasts assume that oil prices have bottomed and will rise moderately going forward.

Still, Governor Kuroda maintains his original projections. Speaking to parliament on Wednesday, he said there is a "high chance of meeting the 2 percent inflation target around the fiscal year 2015", Reuters reported.

Yet that would likely require more easing.

Expect more easing in October

The BOJ will need to wait for the Gross Domestic Product (GDP) growth figures for the April-June period, as well as economic indicators in the July to September period.

The board will need time before it comes to terms with the fact its current scenario just isn't going to happen, reckons Credit Suisse's Shirakawa. The BOJ is assuming that economic growth and a recovery in oil prices will lift inflation. He has pushed back his forecast for further quantitative easing to October, from April or May.

With the economy set to grow at a steady pace, the government is on track to achieve at least one of the two pillars it aims to achieve with its economic policies. The other, to pull Japan out of decades of deflation by loosening monetary policy, faces some criticism because the BOJ's monetary easing has had the side effect of sharply weakening the yen, said Mizuho's Ueno.

As a result, "the government seems to be putting a break on Kuroda's desire to bring about inflation by easing" as quickly as possible, he said.

Ueno maintains his forecast that the BOJ will expand its asset purchase program by another 10 trillion yen in October, when the BOJ holds its semi-annual economic outlook review.