The weakness in demand suggests that the BoJ will likely opt for additional monetary easing early next year. By early 2016, the pressure for the BoJ to maintain the credibility of its inflation goal will build. This should lead to more easing, with the central bank likely to step up and/or extend QE. We expect the yen to decline relative to the US dollar to 128 by the end of this year and 135 in 2016, as a result of widening monetary policy differentials between the Fed and the BoJ.
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