JPY: Further rate cuts needed to attain inflation target - Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 4, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet – Research Team at Nomura, suggests that in its January 2016 Outlook Report, the BOJ is forecasting attainment of its +2% inflation target by FY17 H1 but Nomura sees little likelihood of its forecast being realized.

    Key Quotes

    “While capital flows driven by portfolio rebalancing will likely weaken the yen, the resultant yen depreciation is unlikely to exceed the yen's major depreciation to date. The ongoing improvement in the BOJ's preferred measures of the underlying trend in prices—the core-core CPI (headline CPI ex food, nonalcoholic beverages and energy) and the headline CPI ex fresh food and energy—is likely to grind to a halt.

    Additionally, the base wage increases negotiated in this spring's unionized wage negotiations, which Gov. Kuroda is closely monitoring, look likely to be somewhat restrained. According to the Institute of Labor Administration's 2016 wage hike forecast, employers are projecting that 2016 wage hikes (including annual base-wage raises) will average +2.08% y-y, unchanged from 2015.

    The forecast consequently reflects neither the effects of the BOJ's NIRP nor financial market volatility since 14 January. Considering that labor unions have toned down their wage hike demands this year, we doubt that wage hikes awarded this spring will increase much in response to the BOJ's additional easing.

    Given such an environment, the BOJ will likely ease again. Its statement released at the conclusion of its 29 January Policy Board meeting said that it is prepared to cut its IOER rate further if needed. If additional monetary accommodation is needed, we imagine that additional IOER rate cuts would be the BOJ's first choice among policy options. Its next round of easing may include an increase in risk asset (ETF and/or J-REIT) purchases also.”
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