Monetary and fiscal outlook points to further yen weakness

The Bank of Japan is likely to maintain its current policy settings at its Board meeting tomorrow. But in contrast to the US Fed, the question is whether the Japanese central bank will eventually have to increase its asset purchases, rather than when it will scale them back. We think the Bank of Japan still has a lot more work to do and that the yen has further to fall. What’s more, additional easing from the Bank of Japan will help keep global monetary conditions loose even when the Fed starts to taper QE3.