BoJ: Problem with subsiding inflation pressures - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that unlike the Fed, the BoJ potentially has the opposite problem with inflation pressures subsiding thus creating increased pressure for additional monetary easing.

Key Quotes

“The core nationwide annual CPI rate fell from 0.3% in July to 0.2% in August, the lowest level since September 2013. The Tokyo measure for September fell back into deflation (-0.1%) again for the first time since October 2013. While the favoured BoJ measure (CPI, excluding fresh food and energy) fell to 0.4%, down from a peak of 1.3% at the end of last year.

The 5yr/5yr inflation swap rate in Japan remains close to 0.0% with little evidence that the recent “Comprehensive Assessment” by the BoJ has had any impact on market derived expectations. Hence, we believe pressure will continue to build for the BoJ to do more. Without monetary easing at the meeting ending on 1st November the yen is likely to gain beyond the 100.00 level versus the dollar and complicate even further the BoJ’s efforts to lift inflation.”