Core consumer inflation – excluding the effects of the consumer tax hike – hovered at 0.2 percent in January after peaking at 1.5 percent last April, dragged down by a collapse in oil prices.  Policymakers surprised markets last October by expanding the quantitative easing program for the first time since it was launched in April 2013.  According to Izumi Devalier, Japan economist at HSBC, the BOJ is less concerned about the headline inflation figure than the impact it has on price expectations.  "Its not so much the decline in headline CPI that's bothering or keeping the BOJ up at night. It's whether private sector inflation expectations get dragged down with it," said Devalier.  "And here I think the key issue is going to be household inflation; I do think that households will revise down their inflation expectations based on the decline in energy price. And that could lead the BOJ to ease as early as April," she added.  Theliant also agreed policymakers will step up the pace of easing next month, as "headline inflation is set to plunge in April as last year's hike falls out of the annual calculation," he said.  "Our forecast remains that the Bank will step up the pace of easing from the current ¥80 trillion to ¥90 trillion per annum at its late-April meeting. As a result, we expect the yen to weaken towards 140 against the dollar by the end of the year, while the Nikkei should climb to 20,000," he added.  Japan's economy emerged from recession in the fourth quarter of 2014, logging an annualized growth of 1.5 percent, after contracting in both the second and third quarter as a hike in nationwide sales tax to 8 percent from 5 percent hit consumer spending.
The Bank of Japan (BOJ) kept its massive monetary policy stimulus intact on Tuesday, as widely expected, but analysts are still calling for further action in the coming months on the back of a tumble in the consumer inflation rate.