"A week on from the announcement by the BoJ, there is a wide range of opinions among economists and market participants around what the central bank has actually done, and what it means for the domestic economy and markets.

We agree with the critics that the new policy framework is unlikely to reflate the economy to a greater extent relative to what was the case before. This would require inflation expectations to be 'forward-looking' and the commitment to overshoot the 2% inflation target to be credible. Neither of these two conditions appears to be in place. Governor Kuroda himself has stated that inflation expectations are "adaptive" and convincing people that the central bank will now allow inflation to overshoot 2% when even 1% inflation is difficult to achieve is quite a feat.

But we equally would push back on the idea that the BoJ is 'running out of options' or cutting back its stimulus, as some have also argued. On the contrary, we believe that the launch of the new policy framework shows that the central bank is trying to improve the way monetary stimulus is transmitted to the real economy.

The JPY remains tricky to trade. It trades close to its long-run 'fair value' against the Dollar (estimated with our GSDEER model), and on those grounds is more attractive as a short against the greenback than the EUR. But the decline in Japanese inflation expectations relative to those in the US has meant that throughout this year the ex ante real interest rate differentials have been in the JPY's favour (i.e., real rates are higher in Japan than in the US).

Our FX strategists continue to forecast USD/JPY at 108 in 3 months. This is based on the realization by the Fed that the build-up of inflation pressures requires higher nominal policy rates and a wider interest rate differential that is also driven by lower JPY rates and the BoJ's reinforcement of its commitment to meet its inflation target".

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