In this video Yvette Roper of TradingFloor.com interviews Andrew Robinson, Market Analyst for Saxo Capital Markets in Singapore, about the outlook for Japan and the growing expectation that its central bank will provide more stimulus to ensure it reaches its growth and especially inflation targets this year.

he Bank of Japan (BoJ) meets a on October 30 and in the lead up to this policy meeting there’s little doubt the markets are looking for additional stimulus with the USDJPY 80.00 handle having been broken. In addition to market pressure, politicians have also been pushing for action. Both a new finance minister and economics minister have recently been quite vocal in their attempts to get the BoJ to introduce more stimulus to achieve the 1 percent inflation target,” says Andrew . “The biggest risk is that if the BoJ does nothing then the market is totally disappointed,” says Andrew.

In terms of what stimulus the BoJ may provide, more purchases of Japanese government bonds are touted as the most likely, says Andrew.

Focus is also on the BoJ’s inflation and growth forecasts which it will release at its meeting.  Growth wise no surprises are expected,  given the domestic and external economic situations. Of most interest is the outlook for inflation though. “If they start to lower their inflation forecasts going into 2013 and 2014 then that will look pretty bad,” says Andrew who anticipates that the bank will affirm it is moving closer to its 1 percent target.

According to Andrew, reaching the 1 percent target however is not at all realistic. “The one percent target is a medium term target and they can delay reaching the target for one or maybe two years but any further than that then it does really look like a bit of a pipe dream,”  he says.

QE head start
The Bank of Japan has had a head start compared to other central banks in terms of quantitative easing (supposedly up to its ninth round) and like many is seemingly stuck on this QE to infinity path. “It is their only option - what else can they do to try to stimulate the economy?” says Andrew, adding that the bank like others is still hopeful such measures will work in the future despite them failing so far.

In terms of where dollar-yen will trade ahead of the BoJ meeting, Andrew’s immediate support levels are 79.45 (the 200-day moving average). If we break below there then there’s a bit more support around the 78.50 level. Further out the markets are talking about extending the rally to 82 and some participants say possibly already by the end of the year.

“Personally I think there is more of a chance of getting there in Q1 rather than in Q4,” says Andrew, adding that dollar-yen has a habit of never quite getting to the targets immediately.

See more of Andrew's Asian market commentary on TradingFloor.com