JPY: Further weakness in inflation forecasts – Nomura

Yujiro Goto, Research Analyst at Nomura, suggests that the private forecasters continue to lower their Japanese inflation forecasts, according to the JCER survey (28 March to 4 April).

Key Quotes

“In the April survey, the FY2016 core CPI forecast was lowered further to +0.22% from +0.26% the previous month, after sharply declining from December (+0.82%) to March (+0.26%). The FY2017 forecast was also lowered again to +0.87% from +0.96%. The BOJ’s latest core CPI inflation forecast as of January shows +0.80% (FY2016) and +1.80% (FY2017), which are much more optimistic than consensus expectations.

The BOJ’s quarterly survey on household inflation expectations released today showed unchanged expectations from three months ago, but inflation expectations and forecasts have been slowing on average, putting further pressure on the BOJ to consider easing.

Private forecasters also lowered their GDP growth forecast to +0.93% (FY2016) from +1.04% and to -0.01% (FY2017) from -0.04%. This is also more pessimistic than the latest BOJ growth forecast, and we expect the Bank to lower its inflation and growth forecasts further at the next meeting on 27-28 April.

31% of private forecasters expect the BOJ to ease in April, which is slightly fewer than the previous survey (37% expected easing by April). A separate survey conducted by Nikkei Quick showed 20% of bond investors expected BOJ easing this month, and both surveys show that easing this month is not yet the market consensus.

We do not expect the Japanese authorities to consider imminent intervention, but weaker inflation momentum suggests a high possibility of BOJ easing as early as April. Likely policy responses from Japan, including fiscal stimulus, continue to limit USD/JPY downside risks over the next few months.”