Bank of Japan Governor Haruhiko Kuroda may have dismissed the chances of further monetary easing on Tuesday, but his remarks seemingly fell on deaf ears as strategists continue to bet on stimulus as early as October.
The former Asian Development Bank president said he expected Japan's inflation rate to accelerate considerably and finally hit the central bank's target of 2 percent in the first half of fiscal 2016. This improvement in price pressures makes quantitative easing (QE) unnecessary at this time, he warned.
But nobody seems to believe him.
"Kuroda has made these type of comments before, so we're not too taking it too seriously. Instead of rhetoric, fundamentals are more important and we're still expecting QE in October, especially in the wake of recent China weakness," said Saktiandi Supaat, Maybank's head of global FX strategy, in a phone interview.
Existing data doesn't support Kuroda's perspective, said Tomoya Masanao, managing director of PIMCO's Tokyo office, in a Wednesday report. "Based on the seemingly long distance from the current inflation rate to the target level of 2 percent, one could simply argue that the BOJ should ease more."
Inflation, measured as CPI excluding fresh food, rose a mere 0.1 percent on year in May after spiking 3.4 percent the previous year.
And don't forget about external circumstances either.
"China is in a secular economic slowdown amid deleveraging, which is a powerful external headwind to Japan that requires accommodative policy," Masanao added. "Going forward, any major shock (for instance, an equity sell-off or currency appreciation) deemed significant enough to depress inflation expectations would likely be a trigger for the BOJ to ease further."