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25 Apr 2013
Forex Flash: No policy action is expected at tomorrow’s BOJ meeting - DBS Group
FXstreet.com (Barcelona) - DBS Group analysts believe that eyes will be on the BOJ’s semi annual economic report, in which the central bank may revise up the FY2013-2014 inflation forecasts and project 2% inflation in FY2015.
They feel that lifting price forecasts will demonstrate the central bank’s determination to overcome deflation and reflate the economy. Unfortunately however, they note that CPI figures (March, due tomorrow) will likely show a continued decline of-0.8% YoY. Consumers’ inflation expectations have risen only slightly. They write. “Based on the consumer confidence survey, the percentage of people expecting higher prices in the next 12 months rose to 69.3% in March, a similar level as in April 11 when energy prices went up after the 2011 earthquake/nuclear disaster.” That said, they note that even during the energy price hikes in 2011, CPI inflation stayed negative at-0.3%, because of the fall in other goods and services prices.
This time, they see that the rise in and drive a sustainable economic recovery remains doubtful. They forecast 0% inflation in 2013 and 2.0% in 2014 (fully due to consumption tax hike). Further, real GDP growth is projected to slow to 0.6% next year after a temporary rise to 1.8% this year inflation expectations may also primarily reflect higher energy costs as a result of yen depreciation. They finish by commenting, “To be sure,the slack in the economy is not as large as in 2011 when output fell sharply after the natural disaster. The BOJ forecasts 2.3% real GDP growth in FY2013, above the long term trend of 1%. Nonetheless, when the economy grew 2% YoY during the pre-GFC period of 2003-2007, CPI inflation stayed at 0%, and GDP deflator continued to fall -1% YoY. Deflation is a structural, long term issue in Japan. Whether monetary easing is sufficient to end deflation.”
They feel that lifting price forecasts will demonstrate the central bank’s determination to overcome deflation and reflate the economy. Unfortunately however, they note that CPI figures (March, due tomorrow) will likely show a continued decline of-0.8% YoY. Consumers’ inflation expectations have risen only slightly. They write. “Based on the consumer confidence survey, the percentage of people expecting higher prices in the next 12 months rose to 69.3% in March, a similar level as in April 11 when energy prices went up after the 2011 earthquake/nuclear disaster.” That said, they note that even during the energy price hikes in 2011, CPI inflation stayed negative at-0.3%, because of the fall in other goods and services prices.
This time, they see that the rise in and drive a sustainable economic recovery remains doubtful. They forecast 0% inflation in 2013 and 2.0% in 2014 (fully due to consumption tax hike). Further, real GDP growth is projected to slow to 0.6% next year after a temporary rise to 1.8% this year inflation expectations may also primarily reflect higher energy costs as a result of yen depreciation. They finish by commenting, “To be sure,the slack in the economy is not as large as in 2011 when output fell sharply after the natural disaster. The BOJ forecasts 2.3% real GDP growth in FY2013, above the long term trend of 1%. Nonetheless, when the economy grew 2% YoY during the pre-GFC period of 2003-2007, CPI inflation stayed at 0%, and GDP deflator continued to fall -1% YoY. Deflation is a structural, long term issue in Japan. Whether monetary easing is sufficient to end deflation.”