FXStreet (Delhi) – Research Team at Deutsche Bank, suggests that after what we view as a soft patch in Japan over the summer, due in part to unseasonable weather but also to a temporary pullback in capital investment, they see the economy bouncing back strongly in Q4 and then returning to its underlying 1-1.5% trend during 2016.
Key Quotes
“For an economy that has been repeatedly buffeted by shocks – some self-inflicted, most genuinely exogenous – we are conscious of the difficulty of making firm forecasts. But we do see Japan’s economy as following an underlying growth rate well above its longrun potential and are therefore likely to continue to see the labour market tightening from what is already the lowest unemployment rate in 20 years. Household income growth, reflecting the combination of rising wage growth and employment, should remain at about 2-2.5%, providing the main driver of growth for the economy.”
“While headline inflation should rise through 2016 as the base effect on past oil price declines drops out of the year-on-year comparison, we don’t see it rising beyond 1% until 2017. “Core” inflation, excluding food and energy prices, has risen sharply in recent months and we expect this to continue for a few more months, rising to above 1% in the first half of 2016. But with the lagged effects of yen depreciation wearing off, we expect inflation to stabilize at about 1% rather than moving higher. This may induce the BoJ eventually to add to its asset purchases, but our base case is that it would choose to continue the current level of investments for longer rather than increase the scale of purchases. In any event, the risks likely remain tilted in the direction of any negative shock to growth or inflation expectations leading to an augmentation of QE.”
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